Budget Resolutions and Economic Situation

HC Deb 25 March 1985 vol 76 cc32-174

[Relevant documents: European Community Document No. 10277/84, Annual Economic Report 1984–85 and the Unnumbered document Annual Economic Report 1984–85 (final version as adopted by the Council).]

Mr. Speaker

I remind the House that I have had notification of 27 right hon. and hon. Members seeking to take part in today's proceedings. I therefore propose to apply the 10-minute limit between 7 and 8.50 pm. I hope that Privy Councillors who may be called before that time will bear in mind that some of their colleagues may have a shorter period afterwards.

4.10 pm

The Secretary of State for Trade and Industry (Mr. Norman Tebbit)

As we commence this last day of the Budget debate I wish to re-establish some of the facts upon which opinions and policies are based. Clearly, we all share a common concern at the problem of unemployment and the problems of the unemployed. We are none of us unaware of the costs—in every sense—of unemployment. I have no doubts about the commitment of the Opposition to policies that they currently believe would reduce unemployment, although I hold that those policies are mistaken and would worsen our predicament, not improve it, as they believed throughout the time that they were in office.

For our part, while our commitment to the fight against unemployment is as strong as that of the Opposition, we have drawn different conclusions from the lessons of the past and developed different policies. That is quite understandable: however, it is a pity when the clear facts of our present position are misunderstood or misrepresented.

A theme of opposition speeches, particularly in the past week, and even more of Opposition catcalls, has been: "Recovery — what recovery?" Indeed, even my right hon. Friend the Member for Cambridgeshire, South-East (Mr. Pym) was far too modest about the Administration in which he served so robustly for four years, let alone the achievements which have been built since then on the foundations which he helped so skilfully to lay.

My right hon. Friend said: thank goodness we now have some growth. No one pretends that it is enough, and it still has not returned us to the level of output of 1979".—[Official Report, 20 March 1985; Vol. 75, c. 902.]

Mr. John Smith (Monklands, East)

Hear, hear.

Mr. Tebbit

The right hon. and learned Gentleman says, "Hear hear," but he is wrong as well. After a sharp dip in GDP from the second quarter of 1979 peak to the second quarter of 1981 trough, GDP was recovering well even by the time that my right hon. Friend the Member for Cambridgeshire, South-East left the Government. Indeed, the 1983 figure was above that of 1979. The rise has continued, with the fourth quarter of 1984 being 4.1 points above the second quarter of 1979 peak.

Mr. Roy Hattersley (Birmingham, Sparkbrook)

Big deal.

Mr. Tebbit

It is all very well for the right hon. Gentleman to say, "Big deal." He and his right hon. and hon. Friends have been saying consistently that unemployment is in recession and that output is below the levels which we reached in 1979.

So we see an economy that has been growing since the second quarter of 1981, which is growing now, and which is forecast by everyone, except Labour Members, to continue to grow.

Mr. Hattersley

At a decreasing rate.

Mr. Tebbit

No, at an increased rate. The right hon. Gentleman has it wrong again. Indeed, it is growing well by comparison with other European countries.

Faced with the facts, the Opposition turn to their next favourite cry almost inevitably, which is, "It's all oil," as though no investment, or skill, or human, or material resources were needed to produce that wealth from the North sea and as though somehow it should not count. That would be as absurd as to suggest that digging coal is not an economic contribution, especially when it is carried out in an economic fashion.

Mr. John Smith

The Secretary of State said that the Opposition have misled the House in the comments that Opposition Members have made on the Budget. When he was challenged on investment decreasing in future, he said that that was not true. I refer the right hon. Gentleman to table 3.9 of the Red Book, which makes it clear that in 1985 investment is scheduled to increase by 2 per cent. instead of 6.5 per cent. and will drop to 1 per cent. in the first half of 1986. Surely that is correct. That information is in the Red Book.

Mr. Tebbit

I shall return to investment. I thought that the right hon. and learned Gentleman was referring to output, to which I was referring. As I have said, he is wrong on that. No doubt, as oil exports fall in the 1990s, the Labour Opposition of the day will decide that oil production and not manufacturing is the measure of our national standing.

So let us consider the figures. Gross domestic product—the measure of the nation's total output—is, as I have said, at an all-time peak. It is about 4 per cent. above its previous peak in real terms in 1979.

Mr. John Smith

With oil.

Mr. Tebbit

Exactly. The right hon. and learned Gentleman implies that oil should be excluded from these matters. That is a nonsensical suggestion. If we were to exclude oil, we might just as well exclude banking, other financial services, manufacturing, mining or quarrying. He must take the statistics and the facts as they are and not as he wants them to be.

Mr. John Smith

rose—

Mr. Tebbit

Very well.

Mr. John Smith

The Secretary of State should stop his heavy sighing. If he attacks the Opposition, he will be challenged on attacks that are falsely made. Are the Government saying that they are proud of an increase in output and claim credit for it if the bulk of the increase comes from North sea oil, which the Government did nothing to bring ashore?

Mr. Tebbit

The right hon. and learned Gentleman must understand that the Government do not produce the bulk of wealth in the United Kingdom in any vent. Private enterprise does that and private enterprise was predominant in extracting wealth from the North sea.

Total business investment grew by 12 per cent. in 1984 and is also at an all-time real peak. Moreover, the recovery, which is already the longest sustained period of upturn in the United Kingdom since the second world war, is far from over. The forecasters — perhaps the 364 economists and their satellites on the Opposition Front Bench are to be excepted — are predicting continued buoyant growth throughout 1985, probably up to about 3.5 per cent.

I remind the House that the United Kingdom led Europe out of the recession — [Interruption.] Would Labour Members like the figures, the dates, the times of the troughs and the time of the recovery? I shall place them in the Official Report if that will help them.

Last year, despite the miners' strike, which took about 1 per cent. from our growth rate, United Kingdom growth is still expected to have been close to the European Community average, and in 1985 forecasters are once again expecting the United Kingdom to head the European Community growth league.

Of course the Opposition deplore at length the difficulties of the manufacturing sector. Let us look a little harder at that. Overall, manufacturing industry output fell sharply from its 1978 peak of 109.8 to a trough of 93.9 in 1981 and in 1984 it was back up to 100.2. Within the general category of manufacturing some sectors are still in decline while others are pushing strongly ahead.

Of course, Labour party thinking is governed by the block votes of trade unions — [Interruption.] If we observe the Labour party conference we know that it is governed by the block votes of the trade unions. Labour Members might not like that, but they must put up with it.

Mr. John Prescott (Kingston upon Hull, East)

There is no thinking allowed at a Tory conference.

Mr. Tebbit

We manage our conferences quite easily and skilfully. The hon. Gentleman had better try it himself. The block votes of the trade unions govern the Labour party conference and the industries which count are the heavily unionised and dominant employers of the past, not the less unionised and growing industries of today and tomorrow.

The growth of some manufacturing sectors has been dramatic. Output of office machinery, including electronic data processing equipment, has risen by 182 per cent. since the manufacturing recession trough in the first quarter of 1981. Electronic consumer goods output has grown by 35 per cent., agricultural chemicals by 29 per cent., plastic products by 25 per cent. and pharmaceutical and consumer chemicals, industrial chemicals, electronic industrial goods and electrical consumer goods all by 21 per cent. All those sectors are now producing at record levels. The recovery in manufacturing can be seen in the improvement of export performance.

Mr. David Winnick (Walsall, North)

Is the Secretary of State aware that his sneers a few moments ago were an insult to the Labour party and to the west midlands, which has been devastated over the past five years as a result of Government policies? Unemployment in 1979 was 5 per cent. in the west midlands and it is now well over 15 per cent. In some places it is well over 20 per cent. Areas such as Darlaston in the black country have become industrial wastelands. When is unemployment likely to be reduced?

Mr. Tebbit

I shall come to unemployment. In the meantime, there is no question of insulting the west midlands. I do not even insult the Labour party. I have merely stated the facts about it. If the facts are insulting, that is a pity, but that is the way life is.

Since the end of 1983, manufactured exports have been rising strongly; and by the end of 1984 this expansion had turned into what might almost be called a surge. In the final quarter of 1984 the volume of manufactured exports was 15 per cent. higher than a year earlier and 13 per cent. higher than the previous quarter. Manufactured export volumes are now running at over 10 per cent. above their previous peak. This may come as news to the Opposition, who pretend that it is not happening. Investment volume in manufacturing rose sharply by 13 per cent. in 1984, and a further 7 per cent. real increase is predicted for 1985 by our investment intentions survey. There has been a remarkable improvement in manufacturing productivity, even though the hon. Member for Warrington, North (Mr. Hoyle) believes that

there has been no recovery and that productivity is no higher now than it was six years ago."—[Official Report, 20 March 1985; Vol. 75, c. 904–5.]

Mr. Winnick

So all is well.

Mr. Tebbit

The hon. Gentleman must not say that. I have made it plain that all is not yet well. I am trying to explain the basic economic facts, which the hon. Gentleman does not want to recognise.

By the last quarter of 1984, output per head in manufacturing was 28 per cent. above its trough in 1980 — an average growth of 6.5 per cent. for four years. Productivity performance remains strong, with an increase of 4.5 per cent. in 1984. Since 1979, output per head in manufacturing has increased by about 3.5 per cent. a year compared with 1 per cent. in the period of the previous Labour Government.

There are dangers, of course. Wages here have been rising recently far faster than in Germany, the United States or Japan, and our unit labour costs have been running ahead of theirs. No doubt that is why the right hon.

Member for Birmingham, Sparkbrook (Mr. Hattersley) has committed himself so firmly to controls on incomes and a formal wages policy of some type worked out with the trade unions. No doubt for the same reason, the alliance parties have committed themselves to similar policies. If that is allowed to continue, we would soon fall back to the sorry tale of past failures. With rising output, exports, investment and profitability, it is hardly surprising that business confidence and export optimism in the CBI's industrial trends survey remain strong.

Naturally our attention during these debates has turned time and time again to unemployment. Of course, because our concern is for those without work, we look at unemployment, but to see what is happening in the economy we might be advised to look at employment too.

Mr. Winnick

The right hon. Gentleman cannot sleep at night because of unemployment.

Mr. Tebbit

The hon. Gentleman would be better employed sleeping somewhere if he cannot keep his mouth shut for two minutes at a time.

Our employment peak was 1979, when the annual average figure — [Interruption.] The hon. Gentleman should listen and he could learn something. Our employment peak was 1979, when the annual average figure was 24,799,000. The trough was in 1983, when the annual average figure was 23,124,000. In fact, the trough quarter was the first quarter of 1983. My right hon. Friends knew, when we were returned at the 1983 general election, that employment was already growing in the economy. Since then, the number of those in work has been rising and the 1984 figure—although this is not yet finalised—looks to be about 23,450,000. Yes, it is still 1,300,000 down from the peak but over 300,000 above the trough on an annual basis and some 480,000 above the trough on a quarterly basis.

So the picture is not of an economy in decline, but of one that is expanding. It is an economy not in which jobs are being destroyed or lost overall, but in which they are being created overall.

Mr. Winnick

Oh, no.

Mr. Tebbit

If the hon. Gentleman cannot add and subtract, he had better go out and start to learn simple arithmetic. In other words, the truth about the economy is almost the opposite of what the Labour party is saying. Indeed, it is the opposite of what the leader of the Liberal party so slily implied when, in his Budget broadcast on 21 March, he said:

Is there no alternative to the continuing contraction of British industry? What weasel words. He did not actually tell a lie, but he implied a lie in his question. Industry is not contracting; it is expanding. The answer to the right hon. Gentleman's question is, yes, there is an alternative to contraction—it is expansion and that is what the policies of my right hon. Friend the Chancellor are already bringing about. Of course, the increase in jobs is not yet sufficient to arrest the rise in unemployment, but I hope that hon. Members will this afternoon conduct a debate on the basis of realities and no imaginings, although I begin to despair already from what I have heard from the Opposition.

No one pretends that everything is perfect. When I spoke in the Budget debate last year, it was against the background of falling interest rates and cuts in mortgage rates. No doubt the right hon. and learned Member for Monklands, East (Mr. Smith) will make the obvious point that interest rates are now higher than they were a year ago, although they have begun to fall again. But why did interest rates rise? It was because of higher public borrowing and spending resulting from the miners' strike, which the right hon. and learned Gentleman and his colleagues did so much to sustain, and because of the surge in the value of the dollar against all other major currencies.

Who is more likely to bring interest rates down again — a Government committed to further reductions in PSBR and Government borrowing, or one committed to an enormous increase in borrowing and spending?

Mr. Winnick

How many more pages does the right hon. Gentleman have?

Mr. Tebbit

Plenty more. The hon. Gentleman will get through them much faster if he manages to keep quiet for a minute or two.

It is fair to say I have had another disappointment since last year. The scheme of assistance to the textile industry —CLOFT— has not been implemented, because it has been turned down by the Commission. That was hard to accept after past approvals for large aid schemes for these industries in other member states.

I have made it clear to the Commission that we expect this new and stringent policy for these industries to be applied without exception throughout the Community. The Commission has confirmed that this is its intention.

To ensure that there is no accidental leakage through this dam on state aids for such industries, I hope to enlist the support and help of the CBI and TUC. I have therefore asked them to report any instances in other member states that they believe are suspicious; I have instigated a trawl for further information from our embassies in the capitals of other member states; and I am actively seeking any information on such transgressions elsewhere.

Perhaps here is a constructive and patriotic role for investigative journalism. If there is to be a strict regime, let it be applied with equal force throughout the Community.

Mr. Max Madden (Bradford, West)

As the right hon. Gentleman is referring to the textile industry, he will know of the widespread concern within this industry about the future of the multi-fibre arrangement. Will the right hon. Gentleman take this opportunity to reassure the industry and the House that the British Government are firmly committed to the renewal of the MFA?

Mr. Tebbit

We shall come to these issues before long. I hope that we shall debate them more generally. When the Government have fully considered and concluded their policy towards the renewal of the MFA, I shall be happy to make a statement about it.

I should make it plain that I do not wish to claim the improvement in the economy as the exclusive achievement of Government. It is, above all, the achievement of commerce and industry and workers from boardroom to shopfloor. Our main contribution is to set the framework. There are specific things we can do beyond that. Science and technology and their effective use are central to wealth and job creation. In more mature industries and in the new high technology industries alike, we need to accept and exploit the benefits that technology brings.

Last Tuesday my right hon. Friend the Chancellor announced three additional important tax measures to encourage research and development and innovation: first, scientific research allowances are to remain at 100 per cent., to recognise the risks involved. Secondly, capital allowances announced in last year's Budget are to be refined to allow, from April 1986, short-life assets to be written off for tax purposes over their commercial life. Thirdly, the business expansion scheme is to be extended to include research and development companies — precisely the type of high-risk, high-tech company that the generous personal tax relief of the BES was designed to assist. Those are the improvements in the macro-framework for research and development. We are also introducing a number of measures designed to ensure that my own Department's support for innovation will be more precisely targeted to ensure that it achieves more effective improvements in British technology.

On 12 November last year, my hon. Friend the Minister for Information Technology announced a review of the Department's general industrial support for research and development. I can today announce the results of that review. I have concluded that there should be a change of emphasis in our support. I intend to increase the proportion of aid going on advisory services, the encouragement of best practice, improvement in the supply of key skills, and collaborative research. Support in those areas should help improve the capacity of a wide range of companies to exploit technological opportunities.

It is for individual companies themselves to bear the primary responsibility for projects near the market, and with the increasing company profitability they are now better placed to do so. I know that the right hon. and learned Member for Monklands, East is dismissive of profits — he talks of corporate tax savings being "frittered away" in profits. [Interruption.] If the right hon. and learned Gentleman's memory fails him, I remind him that he said that in column 529 of the Official Report on 15 March 1984.

Personally, I welcome the recovery in profits which enables me to reduce the proportion of the Department's support that goes on such projects. The criteria for assistance under our support for innovation programme, which will be open to new applicants from 1 April, will accordingly be focused more sharply than before.

Our aim is to concentrate support on innovative projects that represent a significant advance for the industry or sector concerned, taking into account the degree of innovation, the degree of technical and commercial risk involved, the potential for market exploitation, and any wider industrial benefits. Products and processes that represent merely a small step forward, needed primarily to keep up with the competition in the United Kingdom, are unlikely to be supported. In line with that, the normal minimum project size will be increased to £100,000. But to help small firms, we shall continue to provide support to them for projects below the £100,000 limit. As in the past, they will also benefit from simplified administrative procedures and less stringent eligibility criteria.

Within those general arrangements, we shall continue to emphasise certain key technologies and their application, such as micro-electronics, fibre optics and computer software. Some key technologies will also continue to qualify for support in respect of investment projects under the Industrial Development Act. Support for aircraft and aero-engine research and development will also continue, but at a reduced level.

I am also taking this opportunity to bring into effect a regrouping of the Department's assistance schemes, which I first announced last July. All the schemes will be presented under just four main groups: support for business and technical advisory services; support for innovation; support for national and regional investment; and support for exports.

Mr. John Smith

With regard to support for innovation schemes, in the forthcoming year does the Secretary of State anticipate an increase in Government expenditure to support those schemes or a reduction?

Mr. Tebbit

There will be less expenditure in real terms. That, of course, is as it should be. The Department of Trade and Industry is not established as a mechanism for handing out taxpayers' money to profitable industry, and as industry becomes more profitable, so it should carry the burden of those activities more and more itself.

My aim is to offer a more helpful and more readily comprehensible service to industry and commerce. With improving profitability, improving prospects and a more helpful tax regime, companies are able to afford to do more. That is in line with the views of the right hon. and learned Gentleman himself. He has expressed the view that he is not very keen on grants and that — [Interruption.] Yes, indeed. I should like to quote from The Guardian — and that is pretty good — of 22 February—

Mr. John Smith

But I agree.

Mr. Tebbit

Oh. Fine. We are in agreement, then, that we should have more profitability, better tax arrangements and fewer grants. So the right hon. and learned Gentleman and I are on absolutely the same side.

I am determined to ensure that the Government spend taxpayers' money only where it is most likely to bring forward new technology or new developments that would not otherwise have occurred. The ability of industry to compete is governed by the quality and skill of our work force. Even now we have grave skill shortages in some sectors—

Mr. Prescott

It was the right hon. Gentleman who abolished 16 of the 23 industrial training boards, with the collapse of apprenticeships.

Mr. Tebbit

Indeed — in order to improve the standard of industrial training.

If those skill shortages persist, we shall miss the opportunities offered by the fastest growing industrial sectors.

A committee, chaired by my hon. Friend the Under-Secretary of State for Trade and Industry, has been looking at those problems. That committee, the IT skills shortages committee, has reported on the shortages of graduates and technicians, and the importance of forging a partnership between industry and the education system. It is for industry to define its skills requirements; the education system must then respond rapidly to industry's needs.

Industry has already committed itself to providing finance, teaching manpower and equipment. It has set up the IT skills agency, alongside the CBI, to co-ordinate industrial contributions to help solve the problems of IT skills shortages.

We are determined to respond particularly to the need for more graduates in engineering and technology. My right hon. Friend the Secretary of State for Education and Science announced last week that £43 million will be available over the next three years to provide additional places for engineering and technology in higher education institutions. A number of Departments — not least my own — are contributing towards the cost of that initiative, which complements the commitments that industry is making. That is a mark of the importance that we attach to solving the problem.

But if industry is to expand, the Government themselves must not clog up the works, impede progress or stifle initiative. There has been a growing recognition, not only in this country but elsewhere, that compliance with Government requirements imposes real and significant costs on business. Last year we announced a review of administrative and legislative requirements in seven Departments of Government. The scrutiny team's report will be published on Friday this week. It identifies options for action to cut burdens in all the main areas of regulation. It calls for a centrally co-ordinated drive to achieve a balance between costs and benefits in enforcement; to improve communications with business, in central Government and local authorities alike; and to control the growth of regulation in future, in the European Community as well as at home.

Mr. Eldon Griffiths (Bury St. Edmunds)

My right hon. Friend is showing most welcome concern about compliance costs. Will he say in broad terms whether compliance costs in the United Kingdom tend to be higher or lower than those of our principal competitors?

Mr. Tebbit

It is difficult to say, but I would imagine from all the evidence that our compliance costs are considerably higher than, for example, those in the United States. It is difficult to compare like with like because systems are often so widely different. What I know, and what the report makes plain, is that there are real compliance costs here, and we should do something to reduce them.

We are publishing that report in advance of Government decisions on most of the options that it identifies. In some areas—on value added tax, wages councils and unfair dismissal law—action has already been announced. Of course there should be a framework to protect employees, consumers and the public as a whole, but that must not impose such a load as to damage the interest of those very groups.

There is another way to help industry. It is to liberate our nationalised industries from the restriction and interference that are an inevitable consequence of state control. We have made remarkable progress in the past year, not least with British Telecom. But there is still much to be done.,

I am therefore pleased to be able to tell the House today of a further step in reducing state ownership. Last summer I asked British Shipbuilders to dispose of its warship building interests, to make substantial progress by 31 March this year, and to complete the process by 31 March 1986. I am pleased to say that I have today given my consent to British Shipbuilders for the sale of Yarrow Shipbuilders Limited to GEC. British Shipbuilders will receive almost £34 million for Yarrow by way of cash consideration, dividend and a payment in due course for group tax relief. This is an excellent start to the process of returning the warship yards to the private sector and it is an encouraging comment on our economic policy that a company such as GEC, which has sometimes been criticised for sitting on a cash mountain rather than investing in industry, has decided to invest in shipbuilding. I am not sure whether I have to congratulate my right hon. Friend the Member for Waveney (Mr. Prior) on these matters, but it is a most welcome investment. I hope that other sales will follow before long.

Last year, the Opposition spokesman on the last day of the Budget debate was the right hon. Member for Bethnal Green and Stepney (Mr. Shore), then the Opposition spokesman on trade and industry, whose retirement from active politics we all understand and regret. At column 721 of the Official Report for 19 March 1984 he said:

It would be absurd if we left the judgment of this Budget to the City columnists and Stock Exchange dealers. The major tests we should apply are threefold. First, will the Budget improve the competitiveness of the United Kingdom economy? Will that competitiveness be expressed in our greater ability to prosper in trade with other nations and thus sustain a favourable balance of payments? Secondly, will the Budget lead to a sustained growth of output? Thirdly, will it make an impact on the appallingly, wasteful and socially disastrous total of 3½ million unemployed" —[Official Report, 19 March 1984: Vol. 56, c. 721.] Those were the tests which the right hon. Gentleman wanted to apply. Let us apply them. Sadly, unemployment has continued to rise—

Mr. Prescott

Sadly!

Mr. Tebbit

Is the hon. Gentleman not sad about it?

Mr. Prescott

It is deliberate policy.

Mr. Tebbit

The hon. Gentleman is offensive and downright stupid. Any Government who set out deliberately to increase unemployment would be signing their death warrant. Governments do not do that.

Mr. Prescott

The right hon. Gentleman has.

Mr. Tebbit

As I said, the hon. Gentleman is offensive and stupid. The sooner he learns a little about the need for courtesy and some common sense, the better.

Mr. Prescott

The right hon. Gentleman is the pole cat.

Mr. Tebbit

Sadly, unemployment has continued to rise, but the first step towards checking and reversing that increase has clearly been taken. The number of jobs in the economy is increasing, as is the number of people at work.

Secondly, the Budget led to a sustained growth of output. That growth was less than we had hoped. We all know that it was due to the coal strike, which was supported by the Labour party which lacked the morals and guts to stand up and support the majority of the miners, but crawled along behind the Scargillite minority.

Mr. Prescott

Was it a good investment for the right hon. Gentleman, then?

Mr. Tebbit

It was a good investment for the nation that that strike was defeated.

The same is true for the balance of trade. Despite the effects of the coal strike, we maintained a balance of payments surplus for the fifth year running. That is the longest run of balance of payments surplus since the end of the second world war.

Mr. Peter Shore (Bethnal Green and Stepney)

The right hon. Gentleman has quoted from my reasonably impressive and well measured remarks of one year ago. Will he tell us what was the balance of payments surplus last year and what it was in 1983?

Mr. Tebbit

I shall happily look the figures up for the right hon. Gentleman. [HON. MEMBERS: "Ah."] I know what point the right hon. Gentleman is making, but he used balance of payments as his criterion. I am using balance of payments as mine. The right hon. Gentleman knows that the position deteriorated and that the prime reason for that was the coal strike of which he was such an enthusiastic supporter. On the Opposition's own test for last year's Budget, my right hon. Friend the Chancellor's judgment was right and his success would have been the greater but for the Scargillite wreckers and their craven allies on the Opposition Front Bench.

Today, despite temporarily high interest rates, industry and commerce is optimistic, confidence is high and prospects are good. There is no shortage of demand in the economy, and it is for British business to satisfy that demand, thereby increasing the number of jobs available.

In this Budget, my right hon. Friend has again acted to help business improve competitiveness, create more work and employ more people. It is a Budget that I am glad to commend to the House.

4.45 pm

Mr. John Smith (Monklands, East)

I suppose that the kindest thing I can say about the Secretary of State's speech is that it was delivered with the usual amount of charm. For the right hon. Gentleman, it was a remarkably defensive speech. It bore all the remarks of careful preparation during the past couple of weeks—of private offices sculling through every selective statistic that could be found and through a mound of press cuttings—to see if the right hon. Gentleman could paste together some apologies to be offered to defend his stewardship of trade and industry.

The statistics were culled on the basis that if a quarter was suitable, a quarter was taken, when it was better to take a year, a year was taken, when there was a suitable reference to the EEC, the EEC was taken and when reference to the OECD was more suitable, the OECD it would be — all of which adds up to an unconvincing picture. The right hon. Gentleman lacked conviction in the ritual peroration with which he finished his speech.

Mr. Tebbit

Will the right hon. and learned Gentleman answer one simple, straightforward and unselective question? Is the number of jobs in the economy increasing and is gross domestic product increasing?

Dr. Oonagh McDonald (Thurrock)

There has been an increase in part-time jobs.

Mr. Tebbit

If I were the hon. Lady, I should not quibble about part-time jobs, especially for women. She will get into trouble, especially with the Leader of the Opposition.

Mr. Smith

The original part of that was a question. I can tell the right hon. Gentleman straight that the number of part-time jobs has increased, but, unfortunately, the number of full-time unemployed has increased at the same time. Gross domestic product has increased—

Mr. Tebbit

Ah!

Mr. Smith

The right hon. Gentleman asked me a straight question. He got a straight answer, and it is too bad if he does not like it. He must listen sometimes, especially when he strays from the land of prejudice into that of fact—countryside with which he is less familiar. Going back to 1979—

Mr. Tebbit

What about GDP?

Mr. Smith

I shall deal with that in a moment, and I shall give the real figures of the peaks and troughs of the Government's achievements. I also have something to say to the Chancellor on that matter.

That is all a far cry, is it not, from the happy days of 1979 when the Thatcher Government were returned with some new and interesting economic propositions? We were told that the Labour Government, with unemployment at 1.3 million, had failed the nation and working people. We bear it in mind that if we apply the calculation of unemployment that the Government use, that figure would be nearer 1 million. We remember the then Leader of the Opposition excoriating the Government for the youth opportunities scheme. The right hon. Lady said that she was not interested in those jobs but only in real jobs. That is what we had to suffer when in government.

Mr. Tebbit

There was no youth training scheme.

Mr. Smith

There was a youth opportunities scheme. I think that the right hon. Gentleman can hear quite clearly and that he heard youth opportunities scheme mentioned then. If he cannot hear clearly, perhaps he will listen a little more attentively.

Three propositions were to mark the new dawn of Conservative economic policy. First, if the money supply was controlled, that would ipso facto control inflation. Secondly, cuts in public expenditure would lead to increased investment in the economy because of the ending of the so-called "crowding out" theory. Thirdly, cuts in personal taxation, especially for higher earners, would galvanise the crucial entrepreneurs who would reinvigorate the economy.

Why, in the whole of the right hon. Gentleman's speech, did we not hear a reference to any of those three propositions, which were reckoned to be crucial for Britain's economic recovery? The truth is that six years later, two thirds of the way into a two-term period of office and ominously near the next general election, the economic policies have not worked.

Until now the Government have usually taken one of two courses when challenged whether the new policies would be successful. The first line that is occasionally adopted is that all is not well. The Government candidly confess to that, but say that it is not their fault; it is that of the Labour Government, trade unions — that is the favourite—the world recession, sometimes of President Reagan and occasionally of bishops and academics. The other policy, which the right hon. Gentleman chose to follow today, is to claim that all is well, the economy is doing sparklingly well, and that with sufficient selected statistics they can persuade a baffled nation, which apparently does not understand as clearly as it should, that we are doing well.

All the Ministers who have spoken in the Budget debates, including the Chancellor of the Exchequer, indulged in that tactic, which makes me think that it was probably predetermined. The phrases recur from one speech to another. They spoke of the fifth year of economic recovery. They did not mention peaks and troughs, but they implied that this was the fifth year of continuous economic recovery. The Secretary of State for Employment spoke of the most sustained economic recovery for 40 years, which the Secretary of State for Trade and Industry repeated almost word for word today.

In Newcastle, at the weekend, the Chancellor of the Exchequer said that 500,000 jobs had been created during the past two years. It is relevant, and of assistance to a nation puzzled about whether it is doing well, to point out that the vast bulk of them are part-time jobs. No reference was made to the increase in unemployment, except by the Secretary of State for Employment who, in his Budget speech, said that the decrease in unemployment had not yet been enough, and thus implied that a little patience was all that was required.

We shall examine the true figures about our economic position. Last year — 1984 — is the first year when investment reached its 1979 level. As the right hon. Gentleman well knows, it is predicted to increase by only 2 per cent. in 1985 and by 1 per cent. in the first half of 1986. The Chancellor of the Exchequer said that manufacturing output had increased by 3.5 per cent. However, it remains 9 per cent. below the 1979 level.

Most ominously of all, although the right hon. Gentleman talked about the increase in exports, no word was uttered about the increase in imports. What sort of presentation of our trading position to the House and the nation deals with an increase in exports but does not mention imports? That is one of the most revealing examples of the selective use of economic statistics. How a responsible Minister can come to the House with the effrontery to expect it to accept such a presentation defeats the imagination. The ominous truth about our balance of trade is that we had a £4 billion deficit on manufactured goods in the past year. If an honest account were given of the Government's performance, that statistic would have fallen from the right hon. Gentleman's lips. He did not mention the increasing import penetration into the United Kingdom.

The truth about the right hon. Gentleman's statistics, like those which we have heard throughout the debates and which during the next year we shall hear ad nauseam, is that, where there are percentage improvements, they are usually only on the Government's own worst performance. The British economy is in difficulties. Hon. Members, objective commentators who look at our condition, and people whose eyes are open and travel round the country, know that the decay has gone far, especially in our industrial areas. Yet the Government have had the benefit of North sea oil revenues.

It is the fashion to anticipate the attack about North sea oil, as the right hon. Gentleman did. However, North sea oil cannot be abstracted from the economy any more than banking or other sectors of economic activity. That is a simplistic view for the right hon. Gentleman to take because he knows what North sea oil has meant to the Government. The Labour Government, who did more than this Government are doing to ensure that oil came on stream on time, received about £600 million in North sea oil revenues. This year the Government will receive £12,000 million in North sea oil revenues. By the time they complete their period in office, they will have received between £70,000 million and £80,000 million. No Government this century have had a windfall of such proportions with which either to increase public expenditure or to diminish taxation. No Government have had such massive assistance to help with the balance of trade or the balance of payments. We must always remember that enormous windfall benefit when we assess this Government's performance against that of previous Governments and our competitor nations. We do not intend to let Conservative Members forget that. They have had a windfall benefit and spent every penny piece of it on paying for the extra unemployment that has been created since they came to office in 1979.

When our history comes to be written, there will be great puzzlement why a nation which received such an enormous benefit decided to create circumstances to consume it in payments for human misery rather than to invest it in retooling and re-equipping industry and putting the nation into a better state. That is the Government's record, and it is uncreasingly understood by the public.

What does the Budget do to help?

Mr. Tebbit

Before the right hon. and learned Gentleman leaves that point, will he tell us whether he accepts that the economy is expanding, that the level of output is higher than ever before and that that expansion is set fair to continue?

Mr. Smith

Output is increasing, but in nearly every year this century output has increased on the year that preceded it. That puts the statistic in a less important light. It would be odd if that were not so. What makes the Government's history useful to them is that they brought us so low between 1980 and 1982, that it is hardly surprising that figures are slightly better in 1983 and 1984. I wish that the right hon. Gentleman had got to his feet and told us that we did not have to worry about the £4 billion deficit on our balance of trade in manufactured goods. He did not mention that in his speech, and I doubt whether he will interrupt me on that subject.

It would be fair to judge the Budget in two ways: what it does to improve employment and achieve more jobs, and what it does to reverse our industrial and economic decline.

Regarding jobs, the Chancellor advertised the Budget as a Budget for jobs, and told us how worried he was about unemployment. He used the word "evil" on one occasion and "scourge" on another. We take it that the Chancellor of the Exchequer, like the right hon. Gentleman, wants us to believe that he is genuinely worried about unemployment, deeply sad that it has reached these proportions, and anxiously casting his mind for ways to reduce it. We must wonder about the Chancellor who, according to The Observer on Sunday, told the Washington Post last December:

economically and politically Britain can get along adequately with double-digit unemployment. Is that the statement of a man who cares deeply about unemployment? The House should note the word "politically". The Chancellor does not deny it. That comment was published in an authoratitive newspaper. I take it from the fact that he does not deny it, that it is true. It is interesting that members of the Administration reveal the truth in America more often than in the United Kingdom.

The Chancellor of the Exchequer (Mr. Nigel Lawson)

The right hon. and learned Gentleman is getting carried away. The gentleman from the Washington Post who came to see me got in slightly garbled form what I had said, which was simply that, despite double-digit unemployment, the economy was going ahead rapidly and we had succeeded in winning the previous general election with a large majority. I went on to tell him that, nevertheless, the Government were deeply concerned about unemployment and were doing all they could to try to reduce it.

Mr. Smith

I have some experience of criminal law, and, on the basis of what the Chancellor said, I find him guilty immediately. That was not the convincing denial of a man who had been grossly misquoted. What an elaborate, confused explanation. No doubt when the Chancellor saw the article in the Washington Post, he wrote immediately to correct this misapprehension. He was not worried, because it was the sort of misapprehension that he did not mind being known about in America. But an alert reporter discovered it, and now we know about it in Britain. The message must be spread, because it is the truth, that the Government's political assessment is that they can get away with the present level of unemployment. The truth is that the Government have no priority for reducing unemployment and that high unemployment suits their political strategy.

If Conservative Members do not like that accusation—it is an accusation which events have forced us to make—let them tell us why, in Budget after Budget, the Government have resolutely turned away from any steps to reduce unemployment. This is not the first Budget in which a wide range of opinion has asked for a modest public sector works programme, organised selectively, to get a few hundred thousand construction workers back to work and to improve our decaying social fabric. It is not just the Opposition who ask for that. As Ministers will know, many Conservative Members—I see them as I look round the Chamber and they always attend such debates—have urged that course upon the Government. It cannot be a devious Socialist manoeuvre if it comes from such respectable advocates.

We also know that there has been no shortage of suggestions put to the Chancellor for stimulating the economy and increasing demand. If the Secretary of State believes that there is no problem with demand, he should visit all the companies which have had to lay off workers because there is no demand for their goods. I hope that he will visit the factories that are producing at 50 per cent. of production and having to lay off workers and tell them, "It does not matter. There is plenty of demand in the economy, and you should know it. That is why you are selling so well." But the Government have spurned every course that they could have taken to reduce unemployment, and even in this Budget the reduction of unemployment is not a high priority. The public are becoming increasingly aware of the truth. They are becoming aware that the misery of unemployment, which affects their families, children and communities, is avoidable and that the Government are pursuing their policies relentlessly, disregarding the social misery that unemployment has brought to our community.

Mr. Richard Page (Hertfordshire, South-West)

How does the right hon. and learned Gentleman square the lack of demand with the huge amount of imports that he says is coming into the country? His argument does not jell.

Mr. Smith

It is too simple to say that if imports are increasing, there is no problem with demand. It is more complicated than that. [HON. MEMBERS: "Ah!"] Of course it is. If there is greater demand in the economy, it offers an opportunity to domestic producers and to importers; but a larger overall demand must give a better opportunity to our producers, unless we are so unconfident about their capacity to compete that we dare not increase demand because imports will take it all up. It is an interesting comment on the present state of industry that we are so unconfident about it that we dare not increase demand.

When will it be safe to expand? Will there come a day when the Government can have a public sector programme? Will there come a day when we can again aspire to economic growth without the fear of inflation? Of course there will. The Government know full well that there is sufficient slack in the economy to increase demand significantly and to have a considerable injection of public expenditure without a substantial increase in inflation.

Mr. Tebbit

Have not the right hon. and learned Gentleman and his colleagues consistently made the case recently that we should have not tax cuts but infrastructure spending? The right hon. and learned Gentleman is afraid that if people had more of their own money to spend, they might be so wicked as to spend it on a holiday abroad or on imported goods. He, not the Government, is saying that he does not have confidence in the ability of British industry.

Mr. Smith

The right hon. Gentleman's intervention did not have much to do with what I was saying, but I am happy to answer it. Has not the Secretary of State grasped by now that the case which many people, not just the Labour party, have made for spending on the infrastructure is that money spent in that way will create far more jobs than will money given in tax cuts? There is a heavy body of evidence to that effect. Since we regard the reduction of unemployment as the highest priority, we naturally advocate that course. The money to spend that the right hon. Gentleman talks about is not available to the entire community. As he knows, many people have not done well out of the Government. If they get a minor cut in taxation, it is soon swallowed by increased gas or electricity prices, prescription charges, or mortgage interest rates. The Secretary of State's suggestion that the miners' strike caused the increase in interest rates will occasion much surprise, but, of course, the miners' strike must be fitted into every problem. It is the best scapegoat of all. According to the Secretary of State, it was responsible simultaneously for the balance of payments problem and for high interest rates.

The Secretary of State knows that the Government are not concerned about reducing unemployment, or they would have taken steps to do so. Instead, they are pursuing and adding to unemployment by trying to introduce a low-wage economy. They started with the abolition of the fair wages resolution and the repeal of the 11th schedule to the Employment Protection Act 1975. Now we are told that jobs will be created by allowing employers unfairly to dismiss people within the first two years of employment. What an absurd irrelevancy. What does allowing an employer unfairly to dismiss someone have to do with creating jobs? What does the abolition of the wages councils have to do with the creation of more jobs? As my hon. Friend the Member for Kingston upon Hull, East (Mr. Prescott) said in a debate last week, it is to the shame of Britain that, alone among the 94 countries which signed the ILO convention, it proposes to renounce its obligations under it. To try to drive down further the wages of people who have been regarded by all parties over a long period as in need of special protection is an especially pernicious way of trying to put the responsibility for our economic problems on people who were not responsible for their creation.

Mr. Winnick

Is it not even more nauseating to consider that the campaign to abolish the wages councils has been run by the most prosperous business men in the Conservative party?

Mr. Smith

As my hon. Friend says, during the debates on the Budget, when an hon. Member has advocated cutting wages or abolishing the wages councils, attention has been drawn by one of my hon. Friends to his entry on the Register of Members' Interests. That will tell a great deal to those who listen to and read our debates.

One would have thought that workers needed little protection nowadays. Indeed, many Conservative Members believe that they should be grateful to have jobs at all and should behave accordingly. Let me tell the Secretary of State for Trade and Industry, who was Secretary of State for Employment for some time, that workers are being exploited. The drive for low wages during a period of high unemployment is causing injustice.

I quote to the right hon. Gentleman the case of Gary Leadbeater, a 17-year-old who lives in the new town of Washington. His case was discovered during a low pay campaign in the north-east. He works as a trainee carpet cleaner, and is paid £33.99 for a 45-hour week. He is paid that sum deliberately. Were he paid £34 a week, his employer would have to pay £4 in national insurance. Until it was abolished in the Budget, the employer received a subsidy of £15 a week from the Government under the young workers scheme. The employer skipped out of the national insurance obligation and got a £15 subsidy, but that boy had to work regularly every weekend because his contract of employment was such that he was obliged to work whenever his employer worked.

It is a scandal that exploitation on that scale should be permitted. These people are vulnerable. In any civilised community, they would be protected, and any civilised Parliament would seek to protect them. People such as Gary Leadbeater will be thrown to the wolves by the abolition of the rights that have been fought and won for them over many years.

We looked at the Budget and saw tax cuts again being given to people in fortunate circumstances. We saw the loving care with which difficulties in the transferring of fortunes from one generation to another are being ironed out in successive Budgets. We came to the simple conclusion about the social justice aspect of the Budget that it is tax cuts for the rich and wage cuts for the poor.

Mr. Lawson

Unfair.

Mr. Smith

The Chancellor may say that, but there were tax cuts for the rich. Under the period of this Conservative Government, the rich are better off by £3,000 million every year. The right hon. Gentleman knows that we are entitled to take one Budget with the others and look at the Conservative Government's record. He may think that that is unfair, but I do not. The benefits given in one Budget are retained for the following year.

There is the long-term problem of industrial decline. Unlike the Secretary of State for Trade and Industry, I do not take the sunshine view of our economy that all is going well and we have little about which to worry. The truth is that with a balance of trade deficit on manufactures of £4 billion — it was only under this Government that we moved into such a balance of trade deficit—we are in difficult circumstances. Many people are worried that in the 1990s we shall be faced with industry based on obsolete technology and staffed by an unskilled work force. That will happen just at a time when North sea oil is running out, and for Britain to try to re-enter the highly technologically developed manufacturing system will be difficult, if not impossible, with the way that we are going.

The Secretary of State referred to the future support for innovation schemes; but, even in the new industries, the Government are cutting back support for crucial industries. The Secretary of State chose not to give us the figures. He is good at giving us figures about anything else except for the policy changes that he announces. Although we did not get any figures, I suspect that there is a substantial reduction in the amount of money that is provided. At least this time the announcement was made to the House instead of being sneaked into a parliamentary written answer as it was on 12 November 1984.

The Government are withdrawing assistance to important industries in information technology where we have a substantial balance of trade deficit as well, as the Secretary of State knows. There is a distinct change of emphasis in the Government. We used to be told about the sunrise industries by the right hon. Member for Mole Valley (Mr. Baker), who is now the Minister for Local Government. As the Minister for Information Technology, he gave a great deal of support to the sunrise industries, but since he has moved the scene has changed.

The Ashworth report, set up by the National Economic Development Council, told us that the industry is in danger of being eclipsed before it has risen. Unless we get new technology, introduced properly, we shall not have the industries of the future, and existing industries will not be able to adapt and renew to play their part in creating wealth in the future.

I mentioned creating wealth because the Secretary of State seems to find it surprising that the Labour party should argue for policies for the creation of wealth. We want to see the creation of wealth, unlike the Conservative party, which does a lot of talking about it, but not much to achieve it. It is odd to observe that the Government are not creating wealth but are redistributing it. But instead of redistributing it from the rich to the poor, they are redistributing it from the poor to the rich. We are not increasing our national wealth. I wish to goodness that we had some policies substantially to create national wealth. The Secretary of State seems to think that, because output is historically up this year on last year, that is good enough. No doubt he will come back next year and say that, as a result of a small increase, the Government are doing well and putting output up every year. He should know very well that in the whole of this century, output has gone up one year after another.

Urgent action is necessary in three sectors to improve our industrial future and performance. We need a new look at education and training. The right hon. Gentleman, when he was Secretary of State for Employment, was responsible for dismantling a great deal of our training system and for destroying our apprenticeship schemes. He is continuing the task, because the changes in YTS are irrelevant to the major problem that we face, which is training new technologists for the future at all levels, from school right through to the higher research institutes.

Recently, the Prime Minister of France said that education and training were so important to that country that it needed 20 years unremitting effort. I wish that we had a Minister in this Government who would take such a view about our future.

Mrs. Elaine Kellett-Bowman (Lancaster)

rose—

Mr. Smith

We know that the programmes for research and development that we have are insufficient. It will not do to allow just a little more tax deductions by way of the business expansion scheme.

Mrs. Kellett-Bowman

The right hon. and learned Gentleman is not giving way at all.

Mr. Smith

The hon. Lady knows that I have given way frequently, but other hon. Members wish to speak.

The key to new products and new processes lies in the application of research and development to our industries. What the Government have announced in the Budget is pathetically irrelevant to the scale of the problem that we face.

We also need new methods of investment. As the Secretary of State for Wales told us only a fortnight ago, the City has lamentably failed the country. It does not produce the available money—

Mr. Tebbit

That is not so.

Mr. Smith

I did not say it. A member of the Cabinet said it. I am entitled to take what a Cabinet member said and treat it with a certain amount of respect, although I would not do that for all members of the Cabinet. For once, this Cabinet member happened to strike the nail on the head. We know that it is true.

Mr. Tebbit

The right hon. and learned Gentleman is being selective.

Mr. Smith

I am not being selective. I was taking the basis of the whole speech, which the right hon. Gentleman would do well to read.

We know that investment is not being provided on the scale and for the purposes that are required and we do not have the long-term investment in Britain's future that we need. None of these important developments is encouraged by the Budget. It is not so much an unremarkable Budget, as some have said, as a bald Budget, because it perpetuates a political assumption that the Government are making, that they can get away with high unemployment and that their political future will be unscathed, despite the fact that unemployment will stay high and may even rise. That assumption, on which the Government are proceeding, will not be tolerated by the people, who have seen, as Budget has followed Budget, the Government woefully and deliberately taking steps—

Mrs. Kellett-Bowman

On a point of order, Mr. Deputy Speaker. Is it in order for the right hon. and learned Gentleman deliberately to repeat the misleading statement that output has always gone up, when under Labour it did not?

Mr. Deputy Speaker (Sir Paul Dean)

That is a matter for the right hon. and learned Member for Monklands, East (Mr. Smith).

Mr. Smith

The Government are proceeding upon the political assumption that they can get away with high unemployment. I dare say that when they retire at night to chew the fat, they say to each other, "Well, we got away with it in 1983, and there is no reason why we should not get away with it at the next election."

However, people are seeing clearly what the Government's game is. They see that high unemployment is being used to discipline the work force, and, if that is not enough, low wages are to be brought in, and, instead of having a high-producing, high-wage economy, we have a low-productivity, low-wage economy, with all its effects on the standards of living of ordinary people and their families, and which they remember from bitter experience between the wars when similar policies of deflation were followed.

Time is running out for the Government, because what they are doing is being understood more clearly by people. Eventually, the Government will find that the verdict of the people, whether it comes early or late, will be based on the Government's wilful neglect and the creation of the misery of mass unemployment.

5.18 pm

Mr. Edward Heath (Old Bexley and Sidcup)

Through the kindness of the media, I had a number of opportunities before the Chancellor made his Budget speech of saying what I should have liked to put in my Budget. Therefore, I am not suffering from the benign neglect with which the Chancellor treated sterling in earlier days. I do not wish to take a great deal of time, but I should like to deal with some of the basic aspects of the problem.

The country was hoping that it would receive from the Chancellor a major creative effort to enable the economy to grow on a sufficient scale to bring about a substantial reduction in unemployment. I believe that a large number of hon. Members of all parties wanted the Chancellor to introduce just such a Budget. He was absolutely frank when he said that he was not going to do so. He introduced a deflationary Budget at a time when there is massive unemployment, which again the Chancellor has been frank enough to tell us will continue to increase. Therefore, after six years of Conservative Government we are faced with unemployment that is getting worse and worse. It is with great sadness and regret that I see this happening.

There has been discussion this afternoon about the political advantage being on one side or the other. To many hon. Members that is not the major factor. The major factor is that in itself unemployment is a pernicious evil. One of the major objectives of those hon. Members who came into politics after the second world war was to prevent the 1930s ever being repeated. Now, to our dismay, we see a situation developing which is worse than that which we lived through in the 1930s. What is even more disturbing is that now we are going back to the same sort of terminology which was used in the 1930s and which then completely failed to solve our problems. The situation was alleviated only by the outbreak of war in 1939.

The Chancellor says that he has been boxed in. Of course he is boxed in, by his own beliefs. There are wide differences among hon. Members about the action which ought to be taken. The major difference is whether or not the Government should make a major effort of their own, through Government expenditure, to deal selectively with the weaknesses in our infrastructure in order to bring us up to date and enable industry to be more efficient, and, in the process, create genuine jobs. This is not a scheme under which it is said that we must find some way of providing jobs, and therefore we must spend money. This is investment for the future. What we are able to do today we owe very largely to the investment of our forefathers in the 19th century and in the early part of this century. If our infrastructure is not kept up to date and efficient we shall betray those who are to follow us because they will not have the same facilities as we have enjoyed during our lifetime.

I said that there are wide differences of view between the two sides of the House and certainly within my own party on this matter. No attempt has ever been made to bridge those differences. I believe that the time has come when we must try to bridge them, not by debating points across the Chamber but by trying to find a definitive solution to the questions which are being raised.

I should like to make one general point, which was touched upon by the right hon. and learned Member for Monklands, East (Mr. Smith) at the end of his speech. I always understood it to be the aim of the Conservative party to achieve a high-wage, high-productivity, low-cost economy. I give credit to the Chancellor for what in his early days he urged upon us in that direction. It seems that we are now in grave danger of going in exactly the opposite direction—of pursuing a low-wage economy without the incentive of achieving high productivity, while still maintaining high costs.

In this respect, the abolition of the wages councils is a retrograde step. Examination of the wages councils is absolutely justifiable and reform may well be necessary, but their abolition will be very considerably opposed by this side of the House, as well as by the Opposition. Having been privileged to be Minister of Labour in my time, I know of the work which the wages councils do. I am reinforced in this view by the fact that a large number of employers do not want the wages councils to be abolished. They believe that they do a good job for those who are covered by them — even 2.5 million is a substantial number—and that they bring about good industrial relations between employers and those working in firms that are covered by the wages councils. That is why they do not wish the wages councils to be abolished. I want to sound that note of warning to my right hon. Friends opposite—[Laughter.] I meant opposite me on this gangway.

Another worrying aspect is that, although the national insurance contribution changes may help the Chancellor to reduce the contribution of the lower paid, they militate against the employers of the higher paid. If we are aiming at a higher-pay, higher-productivity, low-cost economy, again this is going in the opposite direction. I cannot but feel that, by making these changes in this form, my right hon. Friend the Chancellor of the Exchequer has overlooked those basic principles at which we have been aiming for a long time.

Mr. Lawson

If my right hon. Friend is so anxious that there should be ever higher pay, why, when he was Prime Minister, did he introduce a statutory pay policy?

Mr. Heath

I introduced a statutory pay policy with the full support of every colleague in my Government because of the extreme position in which we found ourselves in 1972–73 as a result of world inflation in commodity prices and of the world increase in oil prices. It was always believed that it would be removed when we reached a stable position, and we worked towards that end. What is more, we allowed for considerable increases in wages as we unwound the pay policy. This is one of the myths. The Government have a pay policy. What are they doing all the time bullying the nationalised industries if they do not have a pay policy? Of course they have a pay policy. What are they always urging the trade unions to do? What does the Secretary of State for Employment spend his time lecturing the trade unions about? If we believe in a market economy, we do not spend our time lecturing the market about what it ought to do.

This is the inner contradiction about the Government's attitude. They spend their time saying that sterling is too low. One cannot say whether sterling is too high or too low if one believes in a market economy. The market settles it. At one time the Prime Minister said herself that sterling was too low. One cannot say that if one believes in a market economy, because the market settles it and one cannot have any say in it. If the market has settled at that level, that is the market level in the economy. If my hon. Friend does not understand that, I am very sorry, but it justifies his intervention on sterling.

Mr. Tebbit

It is not necessarily a matter of telling people what they should pay for something. It is often a matter of expressing an opinion as to whether an asset is under-valued or over-valued. It is often a question of telling people what the consequences are of over-valuing or under-valuing assets. That is not incompatible with a free market economy, any more than my right hon. Friend's statutory pay policy was incompatible with his election manifesto that stated that we utterly rejected the philosophy of compulsory wages control.

Mr. Heath

And when we found the necessity for it, and the whole Cabinet supported it, we had the courage to change our policy to deal with that emergency. If the Chancellor has the courage to change his policy to deal with the present emergency of nearly 4 million unemployed, and rising unemployment, I shall have the greatest admiration for him.

We have been told by the Secretary of State that demand is enough. I think he said that there was plenty of demand. But what is "enough"? How in these circumstances does one define "enough"? If unemployment is at the scale that it has reached now and is rising, how can one say that demand is enough to keep those people in employment? If we do not, we are admitting the need for unemployment. That is the basic argument. That is why I want to draw the attention of the House to these basic points which we have got to face, both philosophically and politically.

What is enough? It is quite apparent today that the demand is not enough. The Front Bench insinuation is that the demand is there, but that it has been taken up by imports. There is no indication of how one prevents that happening. The importation of manufactured products has become a far worse problem. However, even if one were able to prevent all the consumer imports, one would still not deal with mass unemployment. There would still be a massive figure, which can be easily calculated. Demand is not enough. There are 24 million unemployed in the OECD countries and that affects all of us, although the United States to a lesser degree.

Now we are told that borrowing for a programme such as many have urged causes inflation. That is a sentence which, in vacuum, is meaningless. Borrowing is going on already. The Chancellor has to decide the level of borrowing. Chancellors have overshot by between £2 billion and £3 billion on their expectations year by year. That has not brought the world or the country to an end. Nor has it produced a solution.

But Goverment borrowing must be seen in relation to the savings of the people. Whether borrowing causes inflation must also depend on unemployment. The fact is that there is massive unemployment. Inflation also depends on the use to which borrowing is put. If it is used for capital investment, as is being urged, it is justifiable. If it is for pure consumption, it is obviously unjutifiable. Those must be the criteria by which we judge whether borrowing for a programme will cause inflation.

We have also heard the argument that borrowing will push up interest rates. The Treasury in Washington and the Federal Reserve Board take exactly the opposite view. They have said publicly that high interest rates are not caused by their own borrowing. Paul Volcker has stated that publicly. The United States has high interest rates, but the United States does not connect that to the borrowing.

The United States has carried through the greatest reflation in history, yet it does not have high inflation. Yet we hear that, if we are to carry through a modest amount of reflation, that will bring about a massive inflation. That is not a justifiable argument.

I am sometimes puzzled because we are always urged to follow the United States in its policies and attitudes. We are told that the American dream must be pursued. I do not know what the American dream is, but I know what the present American situation is. It is borrowing three times as much as we do, taking our currencies and GDP into account. It is taking 70 per cent. of its private savings in order to carry out that policy. The rest—30 per cent.—is coming from overseas. United States savings as a percentage of disposable income are between 5 and 6 per cent. In Britain, they are between 11 and 12 per cent. Therefore, we have more than twice as much disposable income in savings than the Americans if we want to use it properly. The Japanese have 18 per cent. of their disposable income in savings and that enables them to have a much larger borrowing requirement and for the Government to carry out investment.

On the one hand, the United States is showing what it can do by a massive budget deficit, which is largely carried through defence programmes and which goes on into other private industry programmes. On the other hand, the United States is now an international debtor. By the end of the year, it will be the largest international debtor in the world—larger than Brazil. That does not alter the fact that we have twice the personal savings of the United States and just over half that of Japan which can be used for Government purposes.

My right hon. Friend the Secretary of State identified the public sector borrowing requirement as one of the causes of the fall in sterling. I cannot accept that for one moment. When one talks to operators on the exchanges, particularly in Wall street, they have no idea what the British Government's borrowing requirement is or will turn out as. What they do know is that they are worried about the oil crisis and its effect on our economy. They are worried about the future of the oil industry, as that turns down on our economy. That is what is worrying them as long-term investors in Britain, not the Government's PSBR.

Our interest rates are almost entirely governed by American interest rates. The PSBR did not cause the pound to drop. The pound dropped because the dollar rose with increased confidence in it and because of the doubts that I have expressed. Now the pound has risen. That is not because the borrowing requirement has been shown to be any different. It is not even because of the increase of 4.5 per cent. in interest rates. They had no immediate effect. The pound went on dropping. No, it was caused by doubts about whether the United States could keep up its growth and by the banking crisis in Ohio.

That in itself should be a warning to us about the position of the United States. With farmers in a more and more difficult position, the impact on the farm banks will grow. We may well find them in the same difficulties as the savings banks in Ohio. We hear so much about the strength of the American economy, but one has only to think of the furore which arose here, rightly, with the collapse of one bank in the City of London. To have 71 banks collapse at one time shows the danger in the American economy.

My next major point concerns the free market. That affects much of what my right hon. Friends the Chancellor and the Secretary of State have said. It is commonly said that we must remove all distortions, with no explanation as to why action has to be taken. That is not justifiable. Distortions are of two kinds. There are natural ones which we try to counter-balance through our policy and our financial legislation. They provide the justification for regional development programmes, which the Government are rapidly dismantling. Therefore, we find that the north cannot compete with the south. That is why it is falling more and more into derelict acreages. I do not want to go into detail, but I shall argue that at any time with anybody.

Other distortions in our financial legislation were because we wished to influence circumstances at a certain time. We must ask ourselves whether those circumstances have changed sufficiently to alter the situation. There is no automatic principle that distortions of any kind must be removed. That is where we are liable to be misled. To abandon them without showing that they are no longer necessary would be an abdication of government.

I believe more strongly than ever that a Government programme of investment in the infrastructure is desperately needed and should be carried through. My right hon. Friend the Secretary of State's announcement on education is welcome, as is the Chancellor's Budget announcement on the youth training scheme. We must face the fact that Britain still does not have a comprehensive technical education scheme which compares with those of our competitors. This scheme will not be put into effect for another year, so another year will go by and the young will still be unemployed and untrained.

Let me add a word of warning here. Many of us would find it extremely difficult to accept a situation in which social benefits were removed from people between the ages of 16 and 18 if they did not accept a Government proposal for a training scheme. [HON. MEMBERS: "Why?"] Because I strongly believe in the freedom of the individual, including young people. I shall go on believing in that and I do not believe in taking it away from young people.

When one puts together the abolition of the wages councils and the removal of the safeguards on unfair dismissal, one can see that unscrupulous employers will be given the opportunity to employ young people on a low wage and dismiss them within two years in order to take on new young people. We have seen that happen before and we opposed it. We produced legislation to prevent it happening. That is why I am sad to see these proposals come forward.

We must also have a regional development policy to create a balance between the north and the south. We have tried to do that in the past, with considerable success—[Interruption.] Does anybody doubt that success?

Mr. Peter Hordern (Horsham)

Given the substantial grants that have been made to the regions for many years, what success can my right hon. Friend possibly point to? What extra employment has been provided by those grants?

Mr. Heath

Until this world depression, or the depression in this country, arrived, I could have pointed to innumerable places in the north-east—[Interruption.] I was responsible for the north-east in 1963. Lord Hailsham did the plan and I carried it through. What would the north-east be like today without what we did? If my hon. Friend went to Scotland, he would see that the plan is still working there, because Scotland receives a much higher grant than the regions of England. My right hon. Friend the Secretary of State for Scotland can work with local government, and Scotland has its own organisation overseas to obtain trade and investment for Scotland. Despite all the difficulties, there has still been success.

Mr. Nicholas Budgen (Wolverhampton, South-West):

Will my right hon. Friend also point out that that policy was designed to disadvantage the west midlands, and that it has been remarkably successful in that regard?

Mr. Heath

That policy was not designed to disadvantage anyone, and it did not do so. This is the first recession in which the midlands has suffered. Many of us always noted that some cities, such as Leicester and Nottingham, because of their diversification, were not affected in the same way as regions such as the north-east, Scotland, Wales, the north-west and other regions containing the older industries. Birmingham always came through, along with Leicester and Nottingham. But on this occasion, I am sorry to say that Birmingham has not come through. How can those acres of dereliction in the west midlands be restored to our industrial life unless there is an efficient regional policy?

I repeat that we should join the European monetary system. Once again I repeat my plea to my right hon. Friend the Chancellor of the Exchequer kindly to explain to the House, on one occasion in detail, why we are not members of the EMS. Our membership would not only bolster sterling, but would give us more influence in Europe, and would enable us to hold our position with other currencies such as the dollar.

Our greatest problem is our manufacturing industry. There can be no doubt that the base has been eroded. Where else would those derelict acres have come from, had it not been for the fact that our industrial base had been eroded? When my right hon. Friend the Secretary of State cites particular industries, he does not mention the manpower involved in their percentage improvements. The new industries such as the high technology, biotechnology and communications industries are not employing anything like the manpower that our older manufacturing industries employed.

Mr. Lawson

It is the same all over the world.

Mr. Heath

Very well, but that is a fact about the new industries that must be faced. It may be true throughout the world, but I am concerned about this country as well as the rest of the world. If we are going to deal with that position, we must face the fact that we must find employment for those people. How is it to be done? We are not addressing ourselves to that question. We are saying, "Yes, this has gone up a percentage point since 1979, when the Labour Government were in power." But that does not concern me. I am concerned about what we are going to do to replace our derelict areas, to replace the industry that has disappeared and to help the 3.5 million people — and the number is increasing — who are unemployed. That is the crux of the matter.

Our solutions should not be impeded by the sort of dogmatic assertions that I have shown are unnecessary and unjustifiable. When we can face up to that future, we shall have some chance of solving the problem. Of course it will take time to solve it, but we must first recognise it openly and frankly, and then say how we are going to re-create the industrial base that this country needs. It will not be done without the Government. It can never be done alone in modern times, on the scale needed, by saying that we will leave that to private enterprise and that we need only think about the supply side.

Unless that is realised, we shall be left with a legacy of dereliction throughout the country and massive unemployment for decades to come. That is not a future to which I am prepared to look forward.

5.43 pm

Mr. John Silkin (Lewisham, Deptford)

Whatever the Secretary of State for Trade and Industry may try to tell us, this debate is not about recovery but is, as the right hon. Member for Old Bexley and Sidcup (Mr. Heath) has told us, about a deflationary Budget.

The Chancellor of the Exchequer has responded to the mythology and superstition of City opinion, which he himself helped to foster. Indeed, he more than anyone is the author of the constraints that he now claims to face. For half a dozen years he has been peddling his medium term financial strategy—a permanent prescription for severe deflation. In last year's Budget speech he presented his medium term financial strategy as a formula for financial discipline, the 1980s equivalent of the gold standard and the balanced budget.

Yet again this year the Chancellor of the Exchequer assures us that he has little room for choice, and that there is "no virtue like necessity." But he chooses to ignore the fact that it was only by abandoning the gold standard and the balanced budget that Britain escaped from mass unemployment 50 years ago. Only by breaking free from the Government's medium term financial strategy will we generate real recovery in the 1980s.

As the right hon. Member for old Bexley and Sidcup has said, what is missing from the Budget is a major programme of public investment in construction and civil engineering to rebuild our crumbling infrastructure and to create new homes for the homeless and the overcrowded. The need is enormous and the resources could be made available. In England and Wales there are more than 2 million homes that are either unfit or in need of basic amenities. We have roads and sewerage systems that are falling to bits. We also have 500,000 building workers looking for work but unable to find it.

The Chancellor of the Exchequer tells us that the coal dispute has cost £3 billion in one year. That is his excuse for a deflationary budget. This country has three times as many building workers unemployed as there were striking miners in the coalfields. What about the lost production caused by the enforced idleness of construction workers? Britain has an army of jobless bricklayers, carpenters, painters and decorators, dumper drivers and so on, all desperate to get back to work. They want to be on the site, not on the dole. That is bad enough but what is infinitely worse is the effect that that has upon the future of our country.

Reference has already been made to the technological age. To move into that new technological age without the skills that are necessary to house and buttress those skills is to give up the technological race to our competitors: unemployed building workers speedily drift out of the profession; the skills that have been built up over so long a time are all too easily lost forever.

But the Chancellor of the Exchequer has turned a deaf ear to the chorus of voices not just from the trade unions but from employers, unions and independent bodies alike, all calling for a programme of public sector investment in construction. Spending on the public infrastructure such as roads and sewers is the cheapest way of getting people off the dole. It also saves money in the long run. In its latest report, the national Economic Development Office says: The consequences of delaying required maintenance work can be well illustratd for roads. An average life for a road's surface dressing may be 4–8 years. A failure to renew this dressing (the minimum treatment) at the appropriate time can lead to the need for complete resurface at a cost per square metre some ten times greater than that for surface dressing. If resurfacing is also delayed so that the foundations of the road are affected, the cost of restoration can be fifty times that for surface dressing. One typical shire county estimates that at present even its principle roads are only being surface dressed every 10–12 years. Or take my own borough of Lewisham. The chief executive has drawn attention in the February 1985 issue of Town and Country Planning to a stretch of major road where the water main has burst six times in the past two years. Many hon. Members can tell of similar experiences in their constituencies.

In a real sense less than nothing has been done about this for years. Two of Britain's industries have just passed their fourth successive year of negative net investment in real terms. For four years spending on plant and equipment in the construction and transport industries has been so low that they failed even to maintain their stock of equipment intact, let alone modernise and increase it.

Last year the deputy governor of the Bank of England, Mr. Christopher McMahon, pointed out that the same thing had been happening for three successive years to manufacturing industry — a precise repeat of what happened in the 1930s. The Government should be acting to reverse that spiral of decline. Instead, they have cut back further on public sector construction contracts.

In addition, the Budget encourages the revival of labour-only subcontracting in the construction industry. That is a recipe for neglect of safety considerations and of workmanship. Overlooked guard rails and overloaded scaffolding can be death traps. The Health and Safety Executive reckons that self-employed building workers suffer 15,000 injuries a year which are not covered by the 1980 notification of accidents regulations.

The Director General of Fair Trading has drawn attention to shoddy work by cowboy tradesmen. The catalogue of botched jobs, such as securing nails that are missed out and new fittings attached to clapped-out wiring, is legion. Covering up faulty or skimped work is the hallmark of the self-employed cowboy whose motto is In glue and dust we put our trust. If they won't work, putty must. If the income tax and national insurance rules are to be changed to give a boost to self employment, the building trade should have been exempted. A real effort must be made to defeat the lump.

We are told that the Government are no longer simply monetarist, but that they have now embraced supply-side economics. In a way I am a supply-sider too, in that I accept the validity of Josh Billings's comment: As scarce as truth is, the supply is greater than demand. The Government are refusing to face the truth that there is an alternative to mass unemployment. The Budget does not provide that alternative. It is not a Budget for jobs at all. It is a Budget against jobs. This Budget leaves the unemployed where supply-side economics has always meant them to be—in Professor Galbraith's phrase, "abundant, redundant and poor." That is not a recipe for recovery. It is a recipe for disaster.

5.52 pm

Mr. James Prior (Waveney)

It is a long time since I made a speech from the Back Benches. I must crave the indulgence of the House. It will come as no surprise to a number of hon. Members when I say that at times I have disagreed with Government policy in the past few years, and that sometimes I even disagreed with my party's policy in opposition. However, I am not setting out to be a rebel in what has become the accepted sense of the word. I shall try to steer a course between the fairly wide spectrum that exists between my right hon. Friend the Member for Old Bexley and Sidcup (Mr. Heath) and the Chancellor of the Exchequer.

I remind myself and the House that the late Jain Macleod always said that running the country economically was like a juggler trying to keep a number of balls in the air at the same time. He referred to three balls—inflation, unemployment and the balance of payments. It is easy to get one ball in the air and perhaps even two. The secret is in getting three balls in the air. If we are frank, we should accept that no one, for more than a very short time, has managed to keep all three balls in the air at the same time.

The Budget provides an opportunity to look at the economic situation and to assess how we are doing. I believe that Budgets are a much overrated pastime. I cannot for the life of me see how a country with a middle range industrial base such as Britain can have a statement once a year and think that nothing will alter between one and the next. I am certain that, before many months are up, the Chancellor will be back to make another statement. That does not mean that he should indulge in the old concept of fine tuning, but that with the uncertain state of the world and with large amounts of money sloshing all over the place, it is not possible to set a course on 19 March and think that it can be followed immutably until the Budget the following year.

The Chancellor of the Exchequer has taken a number of extremely useful steps in his Budget. I think of the improvements to the youth training scheme, which is a great advance. For the first time we have the beginnings of an amalgamation of national insurance and tax. That must be the right way. There are improvements in science and technology and the announcements today by my right hon. Friend the Secretary of State for Trade and Industry. These matters are complicated and I shall not talk about them now. If the Chancellor is doing anything to help reduce industry's costs and to reduce the burden on industry, we welcome it. We certainly welcome the Secretary of State for Education and Science's additional money for technology and engineering training.

I agree with my right hon. Friend the Member for Old Bexley and Sidcup that our manufacturing base has narrowed considerably. No one can doubt that. A number of other industries are coming along to take its place, but the high exchange rate between 1979 and 1981 did not destroy just the fat; it destroyed quite a lot of muscle. That in part explains why we are importing a larger percentage of manufactured goods.

The manufacturing industry is still the main provider of employment in Britain. Without it, most service industries cannot prosper. The number employed in the service industries cannot be increased without a good and prosperous manufacturing industry. Some important service industries, such as banking and insurance, do not always rely upon manufacturing, but at an insurance dinner the other night the chairman of an insurance company said that he needed a strong base at home to sell insurance in the rest of the world. Tourism also plays its part. Basically, manufacturing industry counts in terms of greater employment and the use of wealth.

The Government are not paying sufficient attention to the need to reduce imports and to encourage exports. We are now competitive in terms of price, but in export markets we are often nothing like as competitive as others in terms of available credit.

The aid and trade programme is an important help to British industry. It can help countries which need aid, but it can also help British industry to give those countries a capital goods structure, which means that they will have to come back time and again to re-order from Britain.

The penny-pinching of the Foreign Office budget is a great mistake. During my many travels in recent weeks, I have come to respect a great deal more of the work carried out by the Foreign Office and the trade commissioners. It is absolute folly to cut back in the way that is intended. For instance, the more overseas students, who do engineering and manufacturing-based degrees in this country, the more likely they are when they return to their homes to order goods from Britain.

Those are important points. I do not think the Treasury always takes a broad view; it tends to look at matters in isolation. For example, if I am asked what the measures I have discussed will do for employment, I have to say that, in isolation, they will probably do very little. But if we believe that manufacturing industry is a crucial employer of labour, a little extra money spent wisely on some of the measures that I have suggested could have a remarkable effect on the level of employment in manufacturing or service industries, and will, in the long run, reduce unemployment and expenditure on unemployment.

I hope that the Treasury will not always look only at the gross figures. This is the first Budget when it has tended to look at the net figures of some of the measures. I used to argue strongly with my colleagues that we should look at the net figures. Perhaps, for the first time, we are now doing so. Although it is well known that I have a thing about the Treasury, I do not think that it is wholly unjustified. The Treasury has a lot to answer for, because it sometimes has not seen the picture in the round.

The Government get themselves into a terribly difficult position by always concentrating on particular targets such as the public sector borrowing requirement or the medium term financial strategy — which is meant to be only indicative, but which has become part of the Holy Grail. The PSBR is the difference between two enormous figures which are bound to change very considerably during the course of the year. The problem is that all these things may be very important, but a Government must weave and turn and not be stuck on particular figures.

On the occasions that I have gone to the City, I have asked those who work there how they think things are going. They say, "We are a bit worried about the level of the PSBR." When I ask why, they say, "Because the Government tell us that we should be worried about it." I have then discussed that with my colleagues, and I have asked them, "How do you think things are going?" They say, "We are very worried about the PSBR." When I ask why, they say, "Because the City tells us we should be worried about it." There is a degree of semantics in this, and I hope tht we will try to get away from it.

I was delighted to read in the Financial Times today, and to note from the Chancellor's speech, that my right hon. Friend is beginning to realise that borrowing need not be quite so tight as it has been in the past. We are borrowing less now than any other advanced society in the world. We have become pinned down on borrowing, which has restricted — and continues to restrict — the Chancellor's ability to move. Therefore, I welcome what he says about possibly doing something next year.

On the argument about extra borrowing and therefore extra public expenditure on infrastructure — it is a dreadful word and I wish that we could find a better one — I simply say that if there are important tasks that need to be done, and which can be shown to be cost-effective and economically worth doing, we should try to find the money for them regardless of whether or not that creates more jobs. If something needs doing, it should be done in the interests of the economy as a whole. We often continue to pour out revenue simply because we have never found quite sufficient money for the capital expenditure that would save revenue in the future.

Those are a number of fairly critical, but not too critical, suggestions, and I turn now to the supply side of the economy. By their legislation and by the changing of attitudes, the Government have done an enormous amount to bring about a better balance between management and labour. There is a growing understanding among trade unionists and others on the shop floor that they cannot simply go on in the old ways, that there must be changes and that the only way to keep a job is to be prepared to accept change and new methods. Simply thinking that one can put one's head in the sand and forget about the problems because of the protection of a trade union is no longer an answer.

Although the legislation that the House has passed in three successive Acts is not used a great deal, it is having a very marked effect on the way and the manner in which trade unions behave. The trade unions must come to terms with the legislation. If they do, they can start to take advantage of it. In future, there will not be the opportunities for trade unions simply to tell people what they can do and expect them to do it. Trade unionists will now want to play a much bigger part in the running of their unions and in the decisions that they make.

It is interesting that the AFL-CIO, the American trade union organisation, has been looking at its records over the past few years, when its membership has fallen and its power of authority very much lessened. It has produced a new document with the remarkable phrase unions find themselves behind the pace of change. If that is true of American unions, it is certainly true of unions in this country.

I should like to hear the right hon. and learned Member for Monklands, East (Mr. Smith) tell the House his views on the employment legislation. He will he doing his party and the country a grave disservice if he thinks that the Opposition, if they gain power at the next election, should repeal the measures on the statute book. I regard their attitude to the legislation as a great test of their sincerity in wishing to have a coherent industrial policy.

I want to say something about the other supply measures. The measures relating to trade unions have been a successful piece of supply economics. I cannot say the same about one or two of the measures in the Budget. My hon. Friends will know of my strongly held views on wages councils. They may need change or alteration, and some of the independent members may have behaved in an extraordinarily silly manner in some of the wage awards, but they do protect the poorest section of society, and that poorest section does need protection.

Getting rid of the councils will not necessarily increase the number of jobs. It might increase the number of part-time jobs, but we are desperately in need of more full-time jobs. The people who are particularly suffering in Britain today are the long-term unemployed, those who have been out of work for more than a year. We must do all we can to get them back into employment.

We might well follow the suggestion that in the first year of the long-term unemployed coming off the unemployment register, they should not have to pay national insurance contributions. That would be a considerable incentive to people to employ the long-term unemployed.

I fear that the latest measures will not make much difference to the level of unemployment, particularly among low wage earners. Evidence of that is to be found in the fact that the young workers' scheme has not worked. That scheme was designed to persuade people to accept that, if wages were kept below a certain level, there would be £15 for the employer, so reducing his labour costs and enabling him to employ more people. That scheme is now being scrapped.

It was a piece of supply side economics which a few close advisers of the Prime Minister thought would work. I fear that some of the suggestions in the Budget came from the same stable. They should go the same way. It is not part of Conservative philosophy to push down those who are already the poorest sections of society.

This is a Budget for jobs. The Chancellor found himself boxed in with little room to manoeuvre. To that extent, I admire his ability to build with what he had available. No Government can do everything. On the other hand, no Government need do nothing. It is not enough for the monetarists to say that nothing can be done about unemployment, just as I and a number of others made the mistake of believing as Keynesians that nothing could be done to stop inflation rising. The truth is that neither the old doctrine of Keynesianism nor the new doctrine of monetarism is the answer to Britain's problems.

We know, or should know—particularly those on the Conservative Benches should know—that there is little place for dogma in a society as free and independent as ours. We must cast out dogma and do what we know to be right and sound and common sense for society. If we do that, the Chancellor will start to tackle the terrible problem of unemployment. I hope that he will have more success than we have achieved up to now.

6.13 pm

Mr. Roy Jenkins (Glasgow, Hillhead)

The right hon. Member for Waveney (Mr. Prior) reminded the House that he was making what was for him almost a maiden speech, speaking from the Back Benches, it having been a decade or more since he had addressed the House from that position. I feel, therefore, that I should congratulate him and say that we look forward to hearing him again. He made an interesting and good speech. He managed well without a Dispatch Box. With the more significant part of his speech I was in agreement, though I thought, in manner at any rate, that he was rather more anxious to be emollient to the Government now that he was no longer a member than he was when he was in the heart of the Cabinet.

I was in almost complete agreement with the remarks of the right hon. Member for Old Bexley and Sidcup (Mr. Heath). That is happening increasingly often these days. Indeed, that trend has been developing over the past 10 years. I do not know what effect losing the leadership of the Conservative party is said to have had on his temper, but it has had a remarkably good effect on the sense and sweep of his judgment and view of the world.

I do not know what would happen if the fate that befell the right hon. Gentleman were to befall the present Prime Minister and whether it would have the same effect on her. I am unoptimistic on both counts.

There has been talk recently of a consensus developing against the budgetary policy. Indeed, the chairman of the Conservative party, the hon. Member for Suffolk, Coastal (Mr. Gummer), gave a certain authenticity to that in a speech last week in which he denounced the consensus. He performs a useful role in the body politic; whenever an idea begins to achieve sense and force, he is immediately sent in to denounce it. He is rather like having an adviser who is invariably wrong, which, so long as one is aware of the adjustment that must be made, is almost as good as having an adviser who is invariably right.

On this occasion he said that it was not a consensus but just the old Callaghan Lib-Lab coalition of 1979. That was rather offbeam. I do not recollect the right hon. Members for Old Bexley and Sidcup, for Chesham and Amersham (Sir I. Gilmour) or for Cambridgeshire, South-East (Mr. Pym) being great supporters of that Government. Indeed, I was not a supporter of them at that stage. Nor, for instance, was Lord Stockton.

There is developing a remarkable and spontaneous consensus not so much against the Budget—because the Budget, the burnt offering of a chastened Chancellor, is hardly worth the creation of a hostile consensus—but against the central tenets of the Government's economic policy, against their hallowed medium term financial strategy.

Let us neither underestimate nor be imprecise about how deep is the difference between the Government and their critics on both sides of the House and how shallow are the differences between the critics, wherever in the House they sit.

What are the main points of difference? First, the Government believe that there is no shortage of demand and that any attempt to provide more would foster inflation and not create jobs. The critics almost universally believe that, with unemployment at historically high levels, with the national debt in relation to the GDP, to national income, at an historically low level — barely half of what it was 20 years ago—and with a Budget impact, if one abstracts the features which arise purely as a result of unemployment, which is wholly restrictive, there is significant room for expansion.

Secondly, the Government dismiss any such call as an addict's demand for ever-increasing doses of discredited reflation. It is nothing of the sort. It is not discredited because increasingly there is evidence around the world that in conditions of substantial unused resources, there is a strong and direct correlation between the sizes of budget deficits and unemployment ratios.

In addition, the critics of the Government's policy are not calling for more reflation; they merely seek less vicious deflation. It is clear that the Government's fiscal stance is not neutral; it is strongly deflationary. The £4.1 billion that is due to come off the financial deficit, which is a more precise measurement than the PSBR, in the coming year—the process is due to continue—

Mr. Richard Ryder (Mid-Norfolk)

Perhaps the right hon. Gentleman will explain how it was that on 17 March, 10 days ago, the right hon. Member for Tweeddale, Ettrick and Lauderdale (Mr. Steel), the leader of the Liberal party, was reported in the Sunday Times as having suggested that if the alliance were to increase public spending by £4 billion we would have a PSBR of only £8.9 billion.

Mr. Jenkins

The hon. Gentleman had better put that question to my right hon. Friend the Member for Tweeddale, Ettrick and Lauderdale (Mr. Steel), who is frequently in the House, if he wants to know more about the precise arithmetic behind his suggestion. There is no doubt that the relationship between the PSBR and an increase in spending is not a simple or direct one. If it ever had any validity, the Government have completely confused it by the nonsensical act of selling off assets in the belief that that affects the Government's general fiscal stance and position.

I shall divert from these considerations to ask the Chancellor of the Exchequer a question which I hope he will answer when he replies to the debate. He began his Budget speech with a catalogue of praise for the performance of the economy in 1984. He spoke of steady growth, low inflation, record exports, and record investment. However, the PSBR is £3 billion above target and, therefore, it must be lashed back into line. If the economy did as well as he claimed with a PSBR of £10.5 billion this year, why do we need the PSBR to be reduced to £7 billion next year?

Mr. Tony Marlow (Northampton, North)

So that we may get the good things that the right hon. Gentleman seeks.

Mr. Jenkins

That is not untypical of the hon. Gentleman; he has the argument completely wrong. How can it possibly be argued that it is good value for money and a good investment to spend £2.75 billion on a miners' strike and a bad investment and had value for money to spend that sum on improving the infrastructure, which will be essential for Britain's future well-being?

Mr. Marlow

rose—

Mr. Jenkins

I have replied to one interjection of the hon. Member for Northampton, North (Mr. Marlow) and that is not a reason for allowing him to make an intervention—

Mr. Marlow

rose—

Mr. Jenkins

—particularly in view of the nature of his interjection.

I turn to the third area of difference between the Government and the generality of the critics on both sides of the House. The Government's financial stance begins to have just a flicker of sense only on the assumption that the road to health is through the intensification of the bleeding to which the economy has been subjected over the past six years. The evidence increasingly is that the slimming down which has come from a destruction of a significant part of our industry has produced malnutrition and not muscular tone.

No one could have put the unpalatable truth with more flat accuracy than did the right hon. Member for Cambridgeshire, South-East (Mr. Pym) last Wednesday. He said: We are no more competitive today than we were six years ago, and probably less so. We still have a lot of progress to make."—[Official Report, 20 march 1985; Vol. 75, c. 902.] Perhaps the right hon. Gentleman was being rather kind to the Government for he implied that we are moving, even imperceptibly, in the right direction. On his own showing, Britain is no more competitive now than six years ago, and probably less so, which would suggest that we are moving in the wrong direction. That is the third major difference between the Government and their critics.

I shall deal briefly with one facet of the international considerations. One of the now favourite arguments of Conservative Back Benchers is to play the French card. It has become a well-drilled response. When a loyal Conservative Back Bencher hears the word "expansion" he, to paraphrase Marshal Goering—this is the good Thatcherite—reaches for his anti-Mitterrand gun.

The weapon is inapposite. In 1981–82, the new French Government gave or encouraged substantial pay rises, nationalised a vast chunk of industry and attempted to combine sitting on interest rates with an expansionary fiscal policy. I am not sure about the Labour party, but it would not be the policy of the Alliance, or I believe of various critical Conservative Back Benchers, to embrace any of the first three policies of the French Government. The analogy therefore collapses.

It is possible that there can be agreement on both sides of the House that there is a limit to the amount of expansion which this country or any other, perhaps with the exception of the United States, can achieve against a world trend—in other words, to buck the international system, as it were, and to stand on its own. This does not mean that our room for manoeuvre is negligible. However, it means that it is finite and would confine us to a result well below tolerable unemployment levels. In my view, something significant could be achieved on our own.

In considering how to handle these restraints, a fourth gulf between the Government and their critics immediately opens. The Government are no more in favour of concerted expansion than of unilateral expansion. At least they are consistent on this issue. They practise what they preach and preach what they practise. Outside the United States they have had a certain baleful influence. Their message to the rest of Europe about public sector deficits has been "hurry on down". Where the advice has been followed, countries in Europe, after lagging shamefully behind in 1981 and 1982, have made a brave effort to catch up with us by increasing their unemployment figures. This has been cited constantly with pride and pleasure by the Chancellor of the Exchequer. Where the advice has been rejected—rather excessively so in the United States—exactly the reverse has happened. As we approach the Bonn summit the Government's posture is rather like that of a man holding a red flag in front of a 5 mph train.

The fifth divide between the Government's critics and the Government is that if the Government judged that they could inject a few billion pounds into the economy they would insist on doing so through cuts in direct taxation. The critics, in accordance with all rational analysis, would give priority to well-selected investment and job creation policies. Another gulf is opening up politically and potentially but for the moment this is rather academic. After all his brave talk in the autumn, the Chancellor has run for cover in the spring.

My advice to the Chancellor would be in future to talk less before his Budgets and to do more when he introduces them. Last year, whether out of over-excitement or for some other reason, he leaked everything to the Sunday press. He was lucky that he was not serving under Lord Attlee. This year he did not leak. Of course, there was not very much to leak. However, his actions were still more foolish. He spent the autumn erecting a number of windmills—for example, VAT on books, newspapers and children's shoes and a tax on pension schemes—at which he proposed to tilt. In addition, he proclaimed the huge splendour of the landscape of vast direct taxation cuts which would be opened up after disposal of the windmills. In the event, neither happened. He did not tilt and there was no splendour. The Budget's interest lies, in the main, in what the Chancellor did not do. This may be all right if there is a sense of calm management and others have created the fears. However, the fears have been created by the Chancellor, and the management of the exchange rate in particular has mingled ineptitude and dogmatism in July and again in January into an almost lethal cocktail.

The Chancellor's clamant, know-all discourtesy does not matter much. In some ways, it is rather endearing. At least it is universal—the right hon. Gentleman does not discriminate between people. What matters more is that, of all the 15 Chancellors I have seen operate in the House, the right hon. Gentleman is at once the most arrogant and the most incompetent. [HON. MEMBERS: "Were you the runner up?"] For some reason, that is not the general view. The Chancellor has become a Figaro who cannot sing, a clown who is not funny. There is no question of bad strategy being redeemed by the Chancellor's virtuoso performance.

Mr. Tim Eggar (Enfield, North)

I think that earlier the right hon. Gentleman was edging himself and the alliance towards opposing the autumn statement. This is an important policy pronouncement. The Treasury and Civil Service Select Committee called for the autumn statement which was delivered by the previous Chancellor. Is the right hon. Gentleman against the statement?

Mr. Jenkins

Is the hon. Gentleman asking about the context or the contents of the autumn statement. It is desirable that there should be an autumn statement. That does not mean that the Chancellor has to announce in advance a number of proposals that he may or may not make six months later. That is not a sensible way in which to proceed.

Dr. Brian Mawhinney (Peterborough)

The right hon. Gentleman has returned to the suggestion that, in some way, my right hon. Friend the Chancellor initiated the public debate about various prospective VAT measures. When my right hon. Friend the Secretary of State for Trade and Industry quoted the words of the right hon. and learned Member for Monklands, East (Mr. Smith), he produced chapter and verse for every quotation. Will the right hon. Gentleman extend to the House the same privilege and let us know, chapter and verse, the reference showing when my right hon. Friend the Chancellor indulged in this discussion about VAT?

Mr. Jenkins

I cannot do that because, as I think the House knows perfectly well, the Chancellor proceeds not by on-the-record statements, but by hints, leaks and indications. If that is not so, will the Chancellor tell us exactly how the whole of last year's Budget was leaked to the Sunday press, as it most certainly was?

We return to certain basic facts. The Government are resolved to continue their deflationary policy. There is no doubt about that. Some of the higher lunacies of believing that control of sterling M3 solved all the problems of pay, productivity or panic in the exchange markets may have been abandoned. The economy may occasionally benefit from the fact that the Chancellor misses his targets, as his predecessor did.

The Government's basic belief remains that the right policy—even with unemployment at 3.5 million—is to reduce the level of Government-induced demand. There is not, therefore, the slightest prospect of unemployment falling below 3 million during this Parliament and well beyond. Indeed, when the great United States boom turns downwards, unemployment will easily be pushed to 4 million, of whom an increasingly high proportion will be long-term unemployed. At the same time, present policies offer no recipe for the revival of our industry, and therefore no real prospect of paying our way satisfactorily when the oil surplus runs out.

Mr. Tebbit

I have been waiting for the right hon. Gentleman to come to his sixth or seventh point on which the Opposition parties are agreed and have a difference with the Government. Are they all committed to an incomes policy—a freeze, inflation tax or another of the social contracts with the unions which do not work and which the Government believe are the wrong approach? Is that not one of the most important differences?

Mr. Jenkins

I had dealt with five points. Other parties, especially the main Opposition party, must speak for themselves. I would not run away from an incomes policy. I would run away from the hypocrisy of the present Government who pretend that they have no incomes policy but in fact have, and must have, an incomes policy. Let the Government ask any of their employees in the public sector whether they think that there is an incomes policy. It is much better to have an open rather than a covert incomes policy.

Because there is no prospect of dealing with unemployment and we see no way in which, with present policies, we can pay our way when the oil surplus goes —I am talking not about when the oil goes but about when the surplus goes, which will be much earlier—the economic policies that are currently pursued endanger our nation's unity and viability. The prospect is worse—there were some murmurs when the right hon. Member for Old Bexley and Sidcup said this—than during the early 1930s. At that time, the unemployment percentage was marginally higher and there was certainly more widespread absolute poverty, but unemployment did not stay at a high level as it is now. Unemployment has been stuck at a high level since the end of 1981. The unemployment rate began to fall rapidly in 1934. The reduction gathered momentum, but there is no sign of that happening now.

Another analogy with the 1930s is far more apt than the analogy with France during the early 1980s, which is so frequently quoted. There was then an increasingly uncoordinated move to broad agreement against the foreign and defence policies of the Chamberlain Government, against appeasement. It embraced the Churchill and Eden wing of the Conservative party, the Liberal party, much of the Labour party—although a substantial element declined to recognise that arms as well as resolutions were needed to resist Hitler — and many people who were not concerned much with party politics. The move was fragmented and attempts to mount a common programme to achieve a united leverage mostly foundered on narrow party considerations. The Labour party believed in its ideological purity and the Conservatives — only Mr. Harold Macmillan apart —preferred to keep the whip and occasionally fulminate from within the tabernacle. As a result, the policy changed only under pressure from outside circumstances — outside the country. That happened so desperately late as to bring us within a hair's breadth of national disaster. The anti-appeasement coalition never got together until Dunkirk was upon us.

Today, fortunately, the stakes are not quite so high. We are unlikely to be invaded by tyranny. But the danger of a destructive decline that goes past the point of no return cannot be dismissed. This time we shall not have external factors to force us out of our folly. If we are to correct the major errors of current economic policy, there must be resolute and united action from all those who believe and know that we are now on the wrong road. Without that, for all the splendour and sense of the speeches that are made, there is little chance of either the critics or the nation escaping from the glare of the Prime Minister's headlights until it is too late.

6.40 pm

Sir William Clark (Croydon, South)

I am sure that the whole House welcomes back the right hon. Member for Glasgow, Hillhead (Mr. Jenkins) after his illness. He congratulated my right hon. Friend the Member for Waveney (Mr. Prior) on doing quite well without a Dispatch Box, and I pay him the same compliment.

I think that the right hon. Member for Hillhead misunderstood the comparison with France that is made by some of my hon. Friends. There was a rapid increase in public expenditure, which President Mitterrand had to reverse. That is the only criticism that we make and comparison that we draw.

We have now heard five speeches, all reasonably critical of the Budget. Later, I should like to refer to some of the good things in it, which will help. My right hon. Friend the Chancellor has been extremely skilful, taking into account the constraints upon him, in what he has done in the Budget. I do not intend to enumerate in detail all the things that he has done, but I shall mention just a few. What were those constraints? Hon. Members throughout the House know what the major constraint was. It was the cost of the miners' strike. Public sector borrowing went up and that affected the Chancellor's ability to cut taxes. If the £2.5 billion that was spent on the miners' strike had been available, my right hon. Friend could have done much more in the radical reform of taxation. Indeed, he could have increased capital expenditure. Opposition Members are in no position to criticise my right hon. Friend because of the constraints, when throughout the miners' strike they themselves did nothing at all to try to persuade the leaders of the National Union of Mineworkers to call off their political strike.

Listening to some of the speeches that we have heard, one would think that a Government could legislate for prosperity. Hon. Members in all parts of the House know that that is absolute rubbish. I welcome the parts of the Budget that will help employment. Of course we would all like to do more and put in more taxpayers' money to try to solve the problem. I remind the House that over £2,000 million is being spent in trying to do so, and next year that figure is being remarkably increased.

I accept and welcome the extension of the youth training scheme from one to two years. I disagreed fundamentally with my right hon. Friend the Member for Old Bexley and Sidcup (Mr. Heath) when he said that unemployment today is worse than in the 1930s. That is a travesty of the truth because there is no comparison between 1930 and today. In the 1930s, not so many married women were going out to work, and the number of people in full-time employment today is far greater than it has been—

Mr. Roger King (Birmingham, Northfield)

So is the population.

Sir William Clark

That is right.

The accusation that was made by my right hon. Friend, who has held high office, should be refuted.

I welcome the graduation in the national insurance contribution introduced by my right hon. Friend the Chancellor. The upper limit for national insurance contributions has gone up for some companies. Some people have mentioned British Oxygen and other public companies in which there are highly paid executives. The 10 per cent. extra that they will have to pay will be allowable for corporation tax purposes and, indeed, corporation tax is reduced by 40 per cent. I should have thought that if a public company was sufficiently prosperous to pay an executive £50,000, £60,000, £100,000, £150,000 or £200,000 a year for his services, the company must be profitable, and the extra cost should not be a burden on it. However, it allows the Chancellor the flexibility of being able to reduce the national insurance contributions of the lower income groups.

No one seems to think that there is any good news, but the fact that there have been half a million more jobs in the past two years must be something to be welcomed. Right hon. and hon. Members who should know better are always denigrating the economy, which cannot help. Why do we always have to talk gloom and doom? Many things in the economy are good. I welcome the change in the unfair dismissal measures and the abolition of the wages councils. I am convinced by my industrial experience that many employers are reluctant to take people on just in case they cannot get rid of them. It is all very well taking on people when business is increasing, but if it declines, that employer is stuck.

My right hon. Friend the Chancellor envisages overspending of £7 billion for next year. It is a question of judgment. Should it be £7 billion, £10 billion, £9 billion or whatever? When critics say that we should increase the public sector borrowing requirement by £2 billion or £3 billion, the impression is given that there is no capital expenditure. However, over £20 billion of the £132 billion public expenditure is capital expenditure. That is no small figure, but listening to some of the speeches that are made, one would think that there was no capital expenditure.

I raised this matter earlier in the debate. I should like to ask my right hon. Friend the Chancellor about the interest on the national debt. I should like to know the breakdown of gross interest. The figure in the Red Book is £17 billion. I am told that that includes the indexed part of the index-linked gilts. I should like my right hon. Friend to explain that to the House.

Everyone agrees that there should be tax reform. As my right hon. Friend the Member for Waveney said, it is high time that we amalgamated the real income tax and national insurance contributions. Despite the graduation, the national insurance contribution is a poll tax and I should have thought that it should be a progressive tax, so it should be amalgamated with income tax. The right hon. Member for Hillhead mistakenly accused my right hon. Friend the Chancellor of flying kites on VAT on children's clothing, books and so on. There was no justification for that accusation.

I am delighted that my right hon. Friend has done nothing to harm the prosperity and success of the pension industry. I am convinced that it is part of Tory philosophy to help people to look after themselves. If the incentive to take out occupational pension schemes was diminished, I fear that many employers would contract back in to the state scheme, as it would be cheaper, and, in 30 years' time, more people would have only one pension.

I urge my right hon. Friend to control public expenditure. He knows that I am a critic of the control of public expenditure, in that there seems to be a weak link. Once a budget for a Department is agreed, it is left to get on with it. I should like there to be a Treasury watchdog in each spending Department. That might secure better value for money. I understood that area managing directors in the NHS were introduced to bring in expertise in the running of that service. I was disappointed to learn recently that, out of the 13 area financial officers who have been appointed, 12 came from within the NHS and only one came from outside business. That is reminiscent of the local government reorganisation of a few years ago. Business experience in such nationalised services is highly desirable.

My right hon. Friend should pay attention to the fact that we are trying to get more people to set up in business. The proposals concerning VAT in the Keith report are important in this connection. On Thursday, I asked my hon. Friend the Minister of State, Treasury whether the taxpayer has a right of appeal. Under the suggested clauses, there is an automatic fine on the taxpayer who sends in a wrong return, unintentionally or otherwise. There should be a strict right of appeal. Although my hon. Friend said that representations will be taken into account when the taxpayer has a "reasonable excuse", I should like to know who will take those representations into account. Will it be the tax collector or an independent tribunal?

My right hon. Friend should take comfort from the fact that, with the exception of those who want to make a political point, the Budget has been well received. It could have been better, but people realise the cost of the miners' strike. Any Government would have had to resist the bully-boy tactics of that strike and no Government could have avoided spending that money. The right hon. Member for Hillhead and others know full well that if the strike had not been resisted, the country would have become virtually ungovernable without the diktat of the trade union movement. The right hon. Member for Plymouth, Devonport (Dr. Owen) made that clear throughout the strike.

Mr. Roy Jenkins

The hon. Gentleman must not misunderstand me. Saying that, with a public sector borrowing requirement of £10.5 billion this year, it is not necessary to reduce it to £7 billion for the coming year, does not mean that one would have been in favour of giving in to the miners, which I was not.

Sir William Clark

I had not misunderstood that at all. I thought that I had said that the £7 billion PSBR was a matter of judgment for the Chancellor. I also said that captial expenditure was included in that total.

Mr. Roy Jenkins

The hon. Gentleman has misunderstood for the second time, but I do not intend to take the time of the House explaining myself to him.

Sir William Clark

The right hon. Gentleman should take some of his own strictures to heart when he accuses my right hon. Friend the Chancellor of being arrogant. I do not know whether he knows the story of the pot calling the kettle black, but to say that I misunderstood is offensive and, I believe, arrogant.

I urge my right hon. Friend to resist the pressures to increase public expenditure. Inflation is down. It will have a hiccup in the new few months, but it will come back to below 5 per cent. He should concentrate on keeping inflation down, as that helps the old, the young, the rich and the poor alike. It is the best benefit that any Chancellor can give the country. The United Kingdom recovery is firmly based. I do not believe that we should change course now, so I welcome the Budget.

Several Hon. Members

rose—

Mr. Deputy Speaker (Mr. Harold Walker)

Order. I must remind the House that the 10-minute restriction on speeches becomes effective at 7 pm.

6.56 pm

Dr. Jeremy Bray (Motherwell, South)

On Tuesday last week, the Chancellor said that the Government's purpose is the "defeat of inflation" and he added: We must also do what we can to combat the scourge of unemployment. Do we see opening up in the fundamental logic of the Chancellor the glimmer of hope that the House, the 4 million unemployed and Conservative Members who are beginning to get worried as the Chancellor's arrogance leads him into electoral disaster have been looking for? We must look carefully at the speech and the financial statement. While the Chancellor has changed the mechanics substantially since the first financial statement with which he was seriously associated—in 1980—we find that he has not deviated from his purpose. The Budget and the tattered philosophy behind it offer no hope of any relief of unemployment.

In its original form, the medium term financial statement offered a coherent, if somewhat naive, basis for Government policy. Look after inflation, it argued, and unemployment will look after itself. It rested on three theories of economic behaviour, which were especially boldly stated by the Chancellor. First, money supply determines money incomes. Secondly, by controlling money income, one controls inflation because output will look after itself with markets clearing on their own and genuine job seekers finding jobs. Thirdly, the exchange rate will adjust to reflect demand for money in different currencies, and hence the price in different countries will maintain a constant level of competitiveness.

Most of that has been abandoned. The only dogma that remains is the self-balancing economy — markets clearing of their own accord. Even that is now heavily qualified by blaming unemployment on market imperfections such as employment protection and wages councils, which are to go by the board.

What has gone wrong with the Chancellor's logic? First, money supply does not determine money incomes. The first glad, confident statement in 1980 did not mention the exchange rate or money incomes, but said that there would be no question of departing from money supply policy, targets being set broadly for four years ahead. Money supply targets for later years are now described as "illustrative ranges" based on assumptions about the growth of money GDP, which appears for the first time this year. There is no confident setting of expectations here.

The money supply targets on their own cannot be trusted to give the right message. The exchange rate has now forced itself inescapably on to the scene and the financial statement argues that we must balance the appropriate combination of the exchange rate and domestic monetary growth needed to keep financial policy on track." — [Official Report, 19 March 1985; Vol. 75, c. 787–89.] What is this "financial policy" about which the Chancellor speaks? Is it distinct from "domestic monetary policy"? Has it anything to do with the gross loss of competitiveness which wrecked British industry in 1980 and 1981? No; it is a balance that the Chancellor says must be struck in a way that takes no chances with inflation. In other words, he clings to the strategy of boosting the exchange rate to fight inflation, rather than pushing it in the direction needed to maintain full employment. The theories, targets and mechanisms of policy are all gone. Only the smile on the rather ugly Cheshire cat remains —the purpose of fighting inflation, whatever the cost in lost output, misery and unemployment.

The latest twist is that, as the cost escalates, it is transmuted into a measure of the depravity of the evil that the Chancellor believes must be dealt with. The greater the cost, the greater the evil must have been. Therefore, it is a self-confirming self-righteousness. The Chancellor put it well at Question Time when he said: Stable prices … is the greatest social service that any Government can provide."—[Official Report, 21 March 1985; Vol. 75, c. 973.] The worry that lurks on Conservative Back Benches is that such priggishness loses elections, even if it is convenient in the City. Conservative Members are looking across the Atlantic and asking, "Why not let the fiscal balance rip, cut taxes and keep the money supply and inflation in check with high interest rates?" The Chancellor conceded that there was nothing sacrosanct about the precise mix of monetary and fiscal policies required to meet the objectives of the medium-term financial strategy, but said that this was not the year to make adjustments in either direction. He repeated the suggestion yesterday on "Weekend World".

The fact is that the Chancellor has not the faintest idea what would happen if he let the PSBR rip. He fears that it would result in the pound plummeting and interest rates rising not to 16 or 17 per cent. but to 25 or 30 per cent. and still not holding the pound. The Chancellor is not now prepared to take that gamble, although he has kept that option open for the last full-year Budget before the general election, when he hopes that the pound will be stronger and when, in a losing position politically, he can blame any fall in the pound on fears of a Labour Government.

If that record has spelt the end of the Government's financial strategy, what should we do? We need a balanced pursuit of objectives, which recognises that in all practical respects the economy is not self-balancing. If we do not seek full employment, we shall not get it. If we do not seek stable prices, we shall get inflation. If we do not seek growth, we shall get stagnation. We can and must seek them all with an appropriate balance between them.

The right hon. Member for Waveney (Mr. Prior) put it well when he referred to Iain Macleod's simile of the juggler having to keep three balls in the air at the same time. That is a good analogy. An even better one is flying an aeroplane in which, if any one direction of control goes wrong, the aeroplane goes into a spin. An apparatus is needed to keep the economy on an even keel. Nowadays it becomes a matter of technical argument, which is pursued effectively in Select Committees, but with only partial access to the facts and the analysis. The Chancellor takes delight publicly in rubbishing that apparatus of information, models, and the way to use them, while in private he creeps round to consult them and tries to rig the oracles of Delphi to his persuasion.

In a wiser and more dispassionate moment 10 years ago, the Chancellor, on Report on the Labour Government's Industry Bill in 1975, voted for an amendment, which I moved, to make the Treasury model available to the public and requiring the Treasury to publish forecasts, of which we have the latest in the financial statement. That has proved a mildly useful exercise, but we now need to take the further step not only of making the models available for test in the macro-economic centre at the university of Warwick, but of applying those models to the analysis of their policy implications. The House is taking that further step by setting up a parliamentary unit at the university of Warwick to work alongside the bureau which tests and compares the models. The parliamentary unit takes the further step of testing and comparing the policies implied by the models for Select Committees, individual hon. Members directly and through the Library. I hope that the Chancellor will show the self-confidence to instruct the Treasury to co-operate fully with the parliamentary unit so that it can be used to defend and criticise the Government's policy and the alternatives.

I am reasonably confident that the Government's policy will stand condemned. The Chancellor will take a different view. He should join the argument, put forward the evidence, let it be searchingly examined and let Select Committees and hon. Members see what the score is.

I am not for one moment suggesting that analysis is everything. We must deal with the challenging and difficult political and moral problems that we face. If we look at the wider political and moral problems, there is no doubt that in the major departures which policy must make, we need the best analysis available.

7.5 pm

Sir Edward du Cann (Taunton)

In view of the time constraints, I hope that my right hon. Friends, who are not present in any case, will be good enough to take the compliments as read. I shall confine myself to two points, on which I may expand on another occasion.

First, as I sat in this crowded Chamber last Tuesday, I reflected, not for the first time, that our Budget day arrangements are becoming increasingly a farce. It cannot be right that the speech of the Chancellor of the Exchequer is almost wholly occupied with a series of detailed announcements about this tax measure or that piece of administration. There are huge issues to discuss, and one looks to the Chancellor to lead the discussions about the decline in the British share of world markets, competition issues, which are now so unfairly fierce on the United Kingdom, exchange rates and so on. In 1963, we made an attempt in that direction. These detailed matters, such as revenue, should in future be confined to the debate on the public expenditure White Paper, and the Budget day debate should be used for the much more serious matters of the national and international economic context in which we live.

My second point deals with the supply side measures announced by my right hon. Friend. They are praiseworthy and will have an effect. In aggregate, his attempt to encourage labour mobility, his determination to achieve better training and his practical measures to make it easier to employ people are wholly admirable. Not for the first time, I avow that unemployment is a curse and degradation for our people. My right hon. Friend could and should have gone further in his attempt to alleviate those problems.

I shall put a single specific proposal to my right hon. Friend. I am one of many hon. Members who have consistently drawn attention to the habit of Governments to spend too much on items of current expenditure and too little on capital projects. When it comes to discussions in Government about levels of expenditure, the capital programmes always seem to be at risk and the administration sacrosanct. Year after year, the Select Committee on the Treasury and Civil Service has quoted figures that show an inadequate level of capital investment. The Government's expenditure plans for 1985–86 to 1987–88 show that that trend continues. By 1987–88, public capital spending will be 12 per cent. lower in real terms than in 1984–85, while current spending will have increased by 0.5 per cent.

As hon. Members on both sides of the House have said, it is essential that capital investment is increased. It could easily be increased. There is something farcical in circumstances which permit a company in the private sector to spend whatever sums it thinks appropriate on capital items, while a water authority, my local authority in Taunton or, indeed, the Government, are highly regulated.

If it is right to transfer functions in the current expenditure category to private enterprise in the interests of economy, it must be right to transfer capital expenditures. Let corporations in the private sector build schools and hospitals — of course, to a specified standard. Then the users — the local education authorities and the regional health authorities—can pay rent adequate to service the capital cost and to amortise the debt. The debate of which we have heard something across the Floor of the Chamber this afternoon — tax cuts versus public investment—is a sterile debate. We are perfectly able to have both if we want them, and both are certainly overdue.

If the logic of my right hon. Friend's approach to his Budget is the containment of public expenditure, this proposal would assist him. If the object of his detailed measures is to facilitate employment, the removal of the shackles on the construction industry would provide many jobs and reinforce his purpose. There is enough spare capacity in the construction industry for it to expand hugely without inflationary pressures.

I do not know what the position is in other constituencies. I can say only that my constituency has been waiting 30 years for a new hospital, which is too damned long. Many schools in Somerset are old, and I could give the House a long catalogue of essential works which I long to see started in my constituency and county. I am sure that every Member of Parliament could do that. It would include bridges, barracks, sewerage works, courts, swimming baths, sports arenas and offices. The list is endless, but it could and should be started.

I find myself asking the question: what are we in the House of Commons? Are we mere talkers and nothing else, or are we doers? We need a little imagination and a little determination. I will give the House a slogan which is perhaps not inappropriate: there must be a way to find work for our people, to replace despair where it exists with a new confidence, and to encourage new growth in our economy and new dynamism. We boast about the growth in our economy, but it is pretty trivial when one stops to think about it. Only an expanding home base will give us a chance to expand our export capability to any real extent.

I do not know what right hon. and hon. Members think about such matters and about the present economic scene. When I saw my right hon. Friend the Member for Old Bexley and Sidcup (Mr. Heath) sitting in that seat today, I was reminded of the time when Winston sat there, and something that he once said went through my mind. He said that to destroy can be a heedless act of a moment —although sometimes destruction is deliberate—but to build is more often the hard and, at times, unthanked labour of weeks, months or even generations. If I have an ambition, it is that the people outside will see us as the builders. There is no reason why we should not be.

I hope that the Minister of State, Treasury will ask my right hon. Friend the Chancellor seriously to consider the idea that I put forward. I am not without experience of raising money in the City and of applying it to constructive purposes. Why should not those things be done? What is holding us back?

Those are the items which I would sooner have us discuss than a few pennies on whisky or a few pennies off the rate of our individual taxes. It is time that the House gave our people a lead, and it is overdue for us to inculcate in their breasts the idea that there is, as there should be, hope for the future.

7.14 pm

Mr. Robert Sheldon (Ashton-under-Lyne)

The right hon. Member for Taunton (Sir Edward du Cann) talked about the trivial rate of economic growth, and many will echo what he said. He also deplored the treatment of capital expenditure by an expenditure-cutting Government. Only the 10-minute rule prevents me from following the right hon. Gentleman into those important areas, which we shall have to discuss in greater depth in the months to come.

I wish to deal with the sort of Budget that we might have expected from this Chancellor of the Exchequer. We all know what sort of a person he is. He has a clear vision coupled with clear intentions, and he has a strong determination to match both. Sometimes he has seemed to have a mission—almost a messianic mission—to carry them into effect. As such, he has been, and I suppose he has seen himself as, the most important executive arm of a theoretical and over-doctrinaire Government. Others in the Conservative party might dream of a world fit for entrepreneurs to live in; it has been his goal to turn it into reality. So determined was he, that at one time during the Labour Government he proposed an Act of Parliament removing from the Government the control of money supply and placing the power in the Bank of England and outside the control of the House of Commons.

That enthusiasm, which as a rule is unusual in this moderate Chamber, found its outlet in the work that the Chancellor did at the Treasury. As the architect of the medium term financial strategy of 1980, as my hon. Friend the Member for Motherwell, South (Dr. Bray) said, he prepared the foundations of an economic plan that was intended to liberate the energies of our wealth creators and to remove the distortions which he believed prevented them from achieving a much higher standard of living and a much greater economic success for them and the entire community.

Therefore, it was his intention, as we all know, to undertake a comprehensive programme of tax reform which would remove many of the allowances and incentives which the Chancellor believed distorted the operations of the free market. So we had the leaks which started in the autumn and went right through the winter, to the effect that we had a tax-reforming Chancellor and that there would be big changes in taxation. The pension kite was flown, as were the balloons of VAT impositions. None of this was a surprise. We have known for a long time what the Chancellor wished to do; we were simply unsure about the details. The leaks did not supply information, they provided confirmation.

When nothing happened on Budget day, we had to ask, what was all the fuss about? What happened to that long shopping list of tax reforms? It seems that even the Treasury was misled by the reforming Chancellor turned conventional politician. In column 794 of Hansard of 19 March there is the heading, "Tax Reform", but it is a title without substance. The same heading appeared in last year's Budget, but it related to stamp duties, life assurance, friendly societies, investment income surcharge, composite rate, corporation tax, capital allowances, stock relief and much more. That was tax reform. This time we had the same heading, but there was nothing there.

We know what the Chancellor wished to do because we know him. He wanted to abolish capital gains tax, to tax pensions—especially lump sums—to broaden the base of VAT and to reduce or even end stamp duties, and he would dearly love to make inroads into mortgage relief. For the latter, he would find much sympathy in parties other than the Conservative party.

Many of those exemptions, totalling about £14 billion, were expected to be challenged so that the Chancellor could begin to achieve his dream and his destiny of a fundamental change in personal taxation. That did not happen, and the question must be, why not? He said that he was boxed in, and we must ask, who boxed him in? It was not the miners' strike; it is only a small cost for 1985–86. Was he boxed in by the problems related to international confidence? Would international confidence wane if VAT was placed on pension lump sums? Would overseas investors withdraw their funds from London if VAT was placed on food? Of course not. The confining of the Chancellor had nothing to do with miners or with overseas investors. The person who boxed him in was the Prime Minister, with her political instinct that tax reform has had its day.

Nicholas Kaldor, now Lord Kaldor, used to say that tax reform was of interest to Governments for a maximum of two years, and after that time, they started thinking about the next Parliament and lost interest. Therefore, instead of the tax reform we expected from the Chancellor, we got a Green Paper or White Paper that will enable him to do nothing at all. Every Government reach a point when electoral politics takes over from economic doctrine. The interesting aspect of this case is that the economic doctrine was so firmly embedded. This Budget is a marker that this point has been reached.

At each Conservative Budget, we have had the ritual chant about the monetary aggregates. The more sophisticated they become, the less the Government and everybody else believe them. Who cares what sterling M3, PSL1 or the money GDP are, or what they are as criteria? They are not the guide to future levels of inflation.

Although the Chancellor happened to throw a bone to Sam Brittan by including a further monetary table of money GDP, will he take any notice of it? He will not. That is all past. This is all said to ease his conscience and the transition from what he believed in the past to what he has to do in the future. Monetarism was meant to do everything to exclude Governments from unpleasant decisions on pay, prices and the exchange rate. Instead, the Chancellor is busy exhorting the trade unions and everybody else, as previous Governments have always done.

The best quote of last week came from the right hon. Member for Chesham and Amersham (Sir I. Gilmour): Professor Phelps Brown put it a shade ironically a year or so ago: 'Monetarists urge trade unionists to make monetarism work.' Not surprisingly, they are not wildly enthusiastic about ding that." — [Official Report, 21 March 1985; Vol. 75, c. 1037.] We have to get rid of the talk and start the real action. We must turn our attention to that.

I am able to deal with only one other aspect of the Budget—national insurance contributions. Here, I can offer the Chancellor a few plus marks. After all, he has turned what used to be a regressive tax into a mildly progressive one. I am pleased about that. However, the Chancellor is expecting rather too much from these changes in their effect on employment. Had they been allied with other positive measures to expand the economy, they would have found a useful and sensible place.

I hope that eventually there will be an amalgamation of national insurance contributions and income tax; the hon. Member for Croydon, South (Sir W. Clark) mentioned this. Perhaps the Chancellor will now turn his attention to progression in the rates of income tax and say that he will introduce reduced rates in income tax as computerisation allows it. If it is sensible to reduce rates for national insurance contributions, it is also sensible to have reduced rates for income tax. All this is being delayed until the computers are installed, and we look forward to seeing it then.

This is a sad and unimaginative Budget, which will do nothing for the unemployed. It is the second Budget that has been heralded as a Budget for jobs. The last one increased unemployment by 100,000. This one is likely to increase it still further. Eventually, we shall have to have a real Budget for jobs, and when we do, which is not likely to be in the lifetime of this Government, the unemployed can take hope from a Government who realise the true importance of unemployment as it exists today.

7.24 pm

Mr. Lewis Stevens (Nuneaton)

This Budget is more practical and progressive than it has been given credit for. In particular, with its effect on national insurance contributions and training and its approach to high technology demand, it is a good one. I commend it more than many hon. Members have as being a useful Budget. The right hon. Member for Ashton-under-Lyne (Mr. Sheldon) spoke about my right hon. Friend the Chancellor being boxed in. No one would question the fact that over the past 12 months there have been many difficulties and events the effects of which could not have been foreseen, nor the extent to which they would affect Government spending.

My right hon. Friend the Chancellor's consistent approach should not be confused with being in a straitjacket. It is the disciplined approach to how Budgets are introduced and monitored, which many Labour Members have thought was a straitjacket, and which many previous Chancellors have refused to carry out. In many past Budgets, previous Chancellors have attempted to inflate. When that did not work, there was panic action to do something different. However, with this Budget, as the year goes on, with a reasonable, stable and disciplined approach, changes will take place just as the Chancellor has decided. That should not be overlooked, as it is one of the most important parts of my right hon. Friend's approach. It has been called dogma, but many people do not like the word "discipline".

The measures on high technology and the encouragement of more graduates are a small beginning. Various hon. Members, including my right hon. Friend the Member for Old Bexley and Sidcup (Mr. Heath), have set out the things that they think should be done. My right hon. Friend said that after the last world war we did not want to see the 1930s return. What happened in the 1950s, the 1960s and the 1970s? Our share of world trade dropped by over 50 per cent., but successive Governments took few measures to introduce and encourage the new technologies. It is to the credit of this Government that they have recognised the great dependency of new technology on training and more graduates. Something has been done about it. However, in the past 10 or 15 years, under previous Governments, nothing happened. It is hypocritical to claim that the Chancellor has not done anything.

My right hon. Friend the Secretary of State for Trade and Industry told the House how many things have been covered in the Budget and spoke about recent steps taken by the Government. It is not good enough for the Opposition and some of my right hon. and hon. Friends to say that what the Government have done is not enough. It may not be all that we should like to see and it may not be sufficient at this stage, but it is all that we can expect at the moment and more than has been done by many in recent years.

The same responsible approach will help some of our industries. The most troubled industries are in manufacturing. That has already been said this afternoon. Government measures should be extended to that sector. However, claims have been made for more money for infrastructure. Manufacturing, the depth of the recession and the wilderness in the west midlands have all been mentioned, but always money is asked for infrastructure. Future Budgets and measures by the Government should be aimed, first, at manufacturing, where jobs could be created, and then at infrastructure.

If we release the money that, by the disciplined approach, we may have, it should go directly to manufacturing, with direct help to manufacturing industries so that they may produce the wealth first and we can follow by investing in the infrastructure. The reverse process is a gamble. The Government should try to help the high-risk industries, but unless the Government have a reasonable, stable money approach, they will gamble, as past Governments have done, by putting money in. Governments are not there to take such risks with taxpayers' money. They are there to control the money carefully and to release it when necessary. That is not what we expected before, but we can expect it with the Chancellor's approach to this Budget.

It is also said that we need high-wage, high-productivity manufacturing industry. That is absolutely true, but during the past 10 years we have been moving from high-wage, low-productivity manufacturing industry. That is why we face so many problems and why many doubt whether we can reap the full benefit of any release of money into the economy. To do so will require further dramatic changes in the style and approach of industry. The trade union movement has a part to play in that change — a point that has already been made in today's debate. The Budget strategy will allow such a change to take place. Low wages will not bring about that change, but less restrictive controls upon industry will lead to industrial progress.

The abolition of the wages councils has been severely criticised. To abolish the wages councils without providing alternative protection for those who are protected by the wages councils would be wrong. Many of the industries in which they work are fragmented. Very little protection is provided, other than by means of the wages councils. The trade unions are unlikely to be able to provide protection. In certain instances it would be difficult for this group of people to join trade unions. Unless an alternative to the wages councils is provided, it would be wrong to abolish them. They ensure that modest levels of income are fixed. Without the protection provided by the wages councils, there will be further exploitation. There is a certain amount of exploitation now, but it is small. The abolition of the wages councils would provide an opportunity for further exploitation. Therefore, it would be a backward step to remove such protection.

I welcome the fact that the Budget demonstrates that we are beginning to gain control over borrowing. The Government have been criticised for not spending as much as they ought to spend. Their critics say that credit is a good thing and that businesses survive by credit. That is true, but all borrowing has to be contained within limits that can be measured. If one continues to borrow, there comes a time when it has to be paid back, which can be very difficult if one has borrowed too much. Many right hon. and hon. Members would gamble on a high risk strategy, with no guaranteed results. I believe that the Chancellor has followed a disciplined approach, in a difficult set of circumstances, which will provide this country with an opportunity to build a flexible strategy which will create jobs. I am far more optimistic about the results of this Budget than I would be about anything that has been advocated by the Opposition.

7.33 pm

Mr. A. E. P. Duffy (Sheffield, Attercliffe)

The Chancellor's second Budget is a missed opportunity. It may have nudged anti-unemployment incentives in a more sensible direction, but politically it is a cautious Budget, and that is likely to prove its main mistake. Under the Prime Minister, Britain is going into a fifth successive year of growth with low inflation and has pulled up the European Community's league of economic performance, but this has been achieved on the back of unemployment which is far too high. This year, therefore, if only for electoral reasons and the Government's own timetable, a dramatic assault on unemployment is clearly called for.

The House will welcome the cut in national insurance contributions and the raising of the level at which people start to pay income tax. However, that is pretty small beer. Anybody coming off the dole to take a job for over £35.50 a week will still be paying 5 per cent. national insurance, not just on the pounds that he earns above £35.50 but on his whole meagre income. Worse, these changes will not reduce hard-core unemployment very much. Therefore, the jobs that the Chancellor will create will typically go to school leavers and part-timers—no bad thing—but the growing problem of families with no breadwinner is scarcely touched by this Budget.

The well-off are the only significant beneficiaries. The Chancellor has left a man on the dole marginally worse off if he smokes and enjoys a pint. Whitbreads in my constituency, as well as my working men's clubs—one of them was fearing the bailiffs only today—will find unacceptable the raising of duty on beer by 7.5 per cent. compared with inflation of 5 per cent.

Although almost everyone in a job is better off than when the Conservatives took office in 1979, the gap between rich and poor has widened considerably. The council manual worker finds his spending power down by 1 per cent. and an unemployed man has to make do with 18 per cent. less than in 1979. The senior manager, on other hand, has 22 per cent. more to spend and the company director 35 per cent. These are examples of "typical" people included in the 1985 version of the annual Budget survey of household income conducted by the Institute for Fiscal Studies.

Moreover, the Budget give-away of £730 million contrasts rather sadly with the £2 billion predicted in the last Budget and with the £6 billion we might have hoped for after the revised forecasts for North sea oil revenue. The Chancellor would have had more room for tax cuts if the had tackled the tax privileges of the pension funds and mortgage holders. The proceeds could have been used to take more of the lower paid out of tax and national insurance claims altogether and to finance some worth-while public investment. Instead, the Government were frightened off by the rumblings of their own Back Benches where the Conservative middle classes are too well represented, as we heard in the speech of the hon. Member for Croydon, South (Sir W. Clark).

As a result, the Chancellor has to confine himself to tinkering at the bottom end of the labour market. But Britain faces an unemployment crisis which requires more drastic measures, as the right hon. Member for Old Bexley and Sidcup (Mr. Heath) argued, if the country is not to be saddled with an army of the permanently unemployed. The emphasis instead has been almost wholly on the supply side, with the recipe of better training, greater labour mobility and providing opportunities for people to price themselves into work. But there is nothing in the Budget in the way of encouraging demand through public works programmes or public investment of any kind.

The problems to which the Chancellor should have addressed himself take two forms. One—already with us—is the socially divisive level of unemployment. The second is the threat to the living standards generally of both the employed and the unemployed. The latter, if not faced, will guarantee that the level of unemployment goes on growing even higher.

The present threat to living standards is obvious in the case of the unemployed, less so in the way that the rundown in the standards of the public sector affects everybody to some extent. Further investment in the public sector would protect standards of service in everything from health to education to sewerage.

The major defects of the Budget are, first, that it fails to make an impact on the 4 million or so without real jobs, and, secondly, that it fails to prevent a remorseless rise in future years while industry continues to shed labour as the effects of the microchip take over from recession. Meanwhile, Britain's infrastructure, already in a serious state of decline according to the National Economic Development Office, will be in an even worse state.

The problem will have to be tackled some time. It will not go away. Why not do so now while there is so much unemployment and when the cost to the state will be less? Reduced borrowing will not build roads and bridges; nor will it restore devastated industrial areas such as my own constituency in the east end of Sheffield or throughout the whole of south Yorkshire. We heard from the right hon. Member for Taunton (Sir E. du Cann) a catalogue of similar infrastructure needs in Taunton and Somerset. Let me offer to the House, Mr. Deputy Speaker, just a few from south Yorkshire. The economy of that area has suffered as a result of the recent coal strike. Its spirit and people have suffered. That comes on top of a decline in the traditional industrial base of the area and a larger than the national average unemployment figure.

It is difficult to exaggerate the scale of industrial devastation in the lower Don valley. Special steels and heavy engineering dominated the east end of Sheffield for 100 years. The collapse of those sectors and the faltering attempts to rationalise for survival have been principally to blame for the state of the valley today. Of the 42,000 jobs, nearly 19,000 have been lost since 1977. Factory closures have left large tracts of vacant and despoiled land and millions of square feet of empty, often semi-derelict buildings. The immense economic problems so apparent in those 2,000 acres of industrial Sheffield have been caused nationally and internationally.

It is right that the people of that area should be able to ask for help in their predicament. Much of that predicament is not of their own making. It is right that they should look to the Government to come to their aid. What the area needs quickly is some major investment, some help with its immediate problems, and some aid to rebuild our once strong local communities. That could come with Government help.

The area was once a proud powerhouse of the nation's economy. It has made enormous efforts to cope with the problems of decline, market forces, world-wide recession and all the other problems affecting it. It deserves some help in its great struggle, whether it be cash for inner-city projects, for roads and for hospitals or a benevolent Government attitude to grants and benefits. It is within the power of the Government to help. Why will they not do so?

The Chancellor's PSBR of £7 billion is too little to provide for the restoration of these areas by about £3 billion. He could still permit a modest public works programme and, incidentally, underpin his supply-side approach. Instead, he has turned his back on public sector borrowing, even for eminently sensible infrastructure projects that would produce major gains in terms of economic and social welfare. He has abandoned old, honoured, now devastated industrial areas such as south Yorkshire.

7.41 pm

Mr. David Atkinson (Bournemouth, East)

There was so much hysteria in advance of my right hon. Friend the Chancellor's Budget this year that when he stood up to make his statement last Tuesday I was reminded of the opening words of Rudyard Kipling' s excellent poem "If'. It is on my wall in my office in Norman Shaw north. It begins: If you can keep your head when all about you Are losing theirs and blaming it on you … You'll be a Man, my son! I congratulate my right hon. Friend on keeping his cool, as his predecessor always did, and introducing a sound, businesslike Budget that can only enhance our economic recovery. I am particularly pleased that he has not even partially attempted, in the words of my right hon. Friend the Member for Waveney (Mr. Prior), to weave and turn to satisfy those who have urged higher public expenditure and/or borrowing to creat jobs which would last only until the money ran out.

Nothing could be more damaging to our prospects. It would have shown that we had learnt nothing from the lessons not just of the past 20 years in Britain but of more recent experience across the Channel in Mitterrand's France. I realise, in saying that, that the right hon. Member for Glasgow, Hillhead (Mr. Jenkins) rightly anticipated that, as a loyal Back Bencher, I was playing the French card.

Instead, my right hon. Friend has chosen to take further measures to create a more favourable climate for enterprise to flourish. He has removed even more obstacles and disincentives to employment and we are promised a package of further measures to help small businesses and the self-employed. In all those respects, this is a Budget for jobs.

Small business men in my constituency have particularly welcomed the VAT relief on bad debts, the tax relief on clause 4 contributions by the self-employed, the two-year qualifying period for unfair dismissal, and the forthcoming consultation document on the future of wages councils. Those are all measures that small business men have been urging on me for years.

My right hon. Friend was right to say that wage councils have contributed to the present unemployment. I have in the past in the House referred to evidence which I have received from small businesses and traders in my constituency, particularly bakers, caterers and those in the entertainments industry, about the effect that over-inflated wages council awards have had on the numbers that they employ. Their business judgment will not allow them to pass on the extra costs in higher prices, so they have had no choice but to shed labour.

Like others in the debate, I am not calling for the outright abolition of wages councils. We should consider the alternatives outlined in the Green Paper. We should also take into account the recommendation of the Auld report on late night and Sunday trading that if all legal restrictions on opening hours were abolished, as the report recommends, the existing wages councils machinery could be extended to ensure satisfactory conditions of employment.

I welcome the additional £43 million over the next three years for the provision of engineering and technology places in higher education to meet the anticipated shortfall of graduates, as foreseen by the Alvey directorate. Has similar consideration been given to the education and training of those preparing to enter the British tourist industry?

During the debate on Wednesday, my hon. Friend the Member for Bournemouth, West (Mr. Butterfill) reminded the House that the tourist industry is not just the largest employer in the country but one that creates jobs in other industries. It also offers one of the greatest potentials for expansion, because Britain is one of the world's most attractive holiday islands. We are still not offering the kind of service and value for money in our tourist industry which satisfies foreign visitors and which will keep more British people from going abroad. It is not just the British climate and it is not VAT, as many in the industry suggest, which encourage people to go abroad. We are still short of professionalism and service in our tourist industry. I want to see more resources going towards training and education in our tourist industry, as well as increased funds for section 4 grant aid.

I welcome the raising of income tax thresholds by 5 per cent. more than inflation so that many more people will no longer pay tax at all, but I regret that my right hon. Friend did not have enough scope to reduce the basic rate of income tax this year. He would have had more scope if he had broadened the base of VAT. I shall be honest enough to say that, if he had done that, he would have had my support.

There is speculation that my right hon. Friend may have more to play around with next year. If so, I hope that he will adopt the same strategy that he adopted last year with the phased reduction of corporation tax, and introduce a phased reduction in the basic rate of income tax from the present 30 per cent. over a stated period to a basic rate of 25 per cent. That will enable working people to benefit in a perceived and measured way in our growing prosperity.

Perhaps such an option could figure in the forthcoming Green Paper on the opportunities for reform of personal income tax arising out of computerisation. I hope that that Green Paper will also refer to two opportunities which computerisation will make possible—the introduction of a tax credits scheme, which it will be recalled was the subject of a Green Paper as long ago as 1972, subsequently endorsed by a Select Committee the following year; and the introduction of local income tax as a replacement for domestic rates, for which so many of my hon. Friends have been calling and which, certainly until recently, was the official policy of the Labour party.

It will be recalled that the 1982 Green Paper on alternatives to rates pointed out that a local income tax could be introduced only following computerisation of the income tax system. Local income tax offers by far the fairest and most efficient alternative to rates.

I end on a whinge which I have repeated in all previous Budget debates. Instead of raising the VAT threshold by £750 as a mere adjustment for inflation, as my right hon. Friend the Chancellor of the Exchequer has done, he should have displayed his characteristic boldness by raising it to a far more realistic £50,000 or even £100,000. In so doing, he would have relieved about half of the businesses currently registered for VAT, as well as all those new businesses to come, from the hours that have to be spent filling in forms for the VAT man when those business men should be working to start or expand their businesses.

Such a measure, along with the higher thresholds announced last Tuesday in income tax and the lower national insurance contributions, would go a long way towards reducing the black economy. In so doing, it would reduce the need to employ quite so many VAT inspectors to investigate evasion and abuse and would reduce the amount of time taken up by courts in dealing with offenders. It would not result in any significant reduction in revenue, since the administration cost of collecting VAT on those businesses is more than 80 per cent. of the yield. Any revenue lost would be more than made up for in extra income and corporation taxes on increased profits and by the fact that people would come out of the black economy.

I shall be reminded, as I always am, that we have to obey article 24.2(c) of the EEC sixth directive. But what have my right hon. Friend the Chancellor and his team done to try to change that directive on behalf of all the small businesses in the Community? I am talking about one measure that he could introduce next year, which would cost him virtually nothing, but which would, at a stroke, free thousands of small businesses from the requirement of having to satisfy bureaucratic red tape in order to get on with making a success and a profit from which more jobs can flow. I hope that my right hon. Friend the Chancellor will bear that point in mind when considering what can be done in next year's Budget.

7.51 pm

Mr. Bruce Millan (Glasgow, Govan)

The hon. Member for Bournemouth, East (Mr. Atkinson) is the only Member to have shown any enthusiasm today for the Budget. There is little enthusiasm for the Budget outside, and there is an overwhelming feeling in the country that the first priority of any Government must be to tackle the appalling and increasing level of unemployment.

The Budget, which is ironically described as a Budget for jobs, will do nothing to reduce the level of unemployment. The Chancellor of the Exchequer made some play of the increases in personal allowances being above the rate of inflation, but from the individual taxpayer's point of view, those increases are trivial. We are talking about literally pence per week. Given the increase in mortgage interest rates, the increases in rates, particularly in Scotland where there will be an increase of more than 20 per cent. this year for domestic ratepayers, and the increases in charges for the NHS, electricity, gas and so on, even if someone is lucky enough to be in work, he will be a net loser as a result of the Government's actions in the Budget and in other announcements.

The Government say that they have not got a pay policy, but they should tell that to the teachers in England, Wales and Scotland who are on strike precisely because the Government have a pay policy that is applied extremely stringently and unfairly in the public sector. But as I have said, for the individual taxpayer, the increases in the tax allowances are trivial.

However, our major complaint is that the Chancellor's terms of reference were completely wrong. In particular, he allowed himself to be constrained, or boxed in, by attempting to reduce the PSBR in 1985–86. Given the general needs of the economy, what he is doing is not only economically but morally wrong, and quite shameful. The sooner we get away from the Government's absurd preoccupation with the PSBR — which is now found practically nowhere else — the better. One of its absurdities is that it is in any case only a balancing operation for the vast amounts of expenditure and receipts that total about £150 billion per year.

In 1984–85, the PSBR stood at £10.5 billion. We were told that that was not intended by the Government, and that it was the result of the miners' strike. Yet the Government boast at the same time that that strike was a worthwhile investment. In any event, the increase in the PSBR has had no significant effect in terms of inflation or of affecting confidence in the money markets, and so on. The Chancellor argues that it is perfectly possible to run a PSBR of £10.5 billion by default in 1984–85 without any real damage being done to the economy, while at the same time saying that he must reduce it to £7 billion in 1985–86. As a result, he is unable to make available the public expenditure that is desperately needed if we are to get the economy moving in a way that holds out any prospect of reducing the appalling level of unemployment.

If we can spend £2.5 billion to £3 billion on combating the miners, we can spend more than that on putting productive resources back into the economy. That is what the Budget should have done. However, the Chancellor was unwilling to do that, so the Budget, far from reducing unemployment, will considerably increase it in the next year or so.

There is no lack of ideas even on the part of Conservative Members. Hon. Members have put forward their ideas for spending money on essential public facilities such as housing, roads, hospitals and so on. In addition, we could get the Government off the backs of local authorities. We also need to spend more on industrial development. Yet in 1985–86 there are to be cuts in regional aid. As a result, about £450 million will be saved. All that money will come from areas with high unemployment, where additional rather than reduced expenditure is vital if we are to get people back to work.

The manufacturing sector of the economy shows the extent of the decline in the past five years. We need additional expenditure and additional schemes for that sector of the economy. The Secretary of State for Trade and Industry announced several items today, but when he was challenged about the announcements on, for example, industrial innovation he had to admit that in 1985–86 Government expenditure would be lower rather than higher on such innovation. It is positively offensive that a Secretary of State for Trade and Industry, who is supposed to be responsible for industry in this country, should be so complacent about the decline that has taken place in the past few years in our manufacturing sector.

The Chancellor has boasted about investment being at record levels in 1984–85. But investment in manufacturing industry is still considerably below the 1979 level, despite the fact that particular incentives were written into the 1984 Budget. They should have meant a considerable increase in investment in 1984–85 at the manufacturing end of our economy. That increased investment has not happened, despite the taxation changes in the 1984 Budget. When the changes work their way through, they will damage, rather than improve manufacturing investment in 1985–86 and in subsequent years. According to the Red Book, investment is estimated to increase less in 1985–86 than in 1984–85.

I am using the Red Book and not selecting extracts from Government statistics as the Secretary of State did earlier. It is estimated that the deficit in 1985 in manufacturing on the balance of payments will be £4.5 billion. That is after the miners' strike has ended. In 1984, the figure was £4 billion and in 1983 it was £2.5 billion. If it were not for the oil contribution to the balance of payments — estimated at £10 billion in 1985—we should be running a deficit of about £7 billion.

The Secretary of State talked about the increase in exports in 1984. He did not say that that was the same as the increase in the level of world trade in 1984. All we did, despite devaluation, was to keep pace with world trade. In spite of the mere 5 per cent. increase in domestic demand, there was a 10.5 per cent. increase in imports in 1984.

The picture for manufacturing is gloomy, basically because much of our industry has been destroyed. Even when an upturn in the world economy arrives — the sooner the better—much of our industry will no longer be there to benefit.

All this has happened despite the advantages of North sea oil. Ministers in particular tend to devalue the contribution made by North sea oil but, as the Red Book demonstrates, North sea oil accounts for about 6 per cent. of GNP. That is not a trivial contribution. Despite all the advantages of North sea oil, manufacturing is declining. The economy as a whole is declining, and the Budget holds out no hope for the unemployed.

8.2 pm

Mr. Ralph Howell (Norfolk, North)

I have looked forward to a truly radical reforming Budget for nearly 15 years and I do not pretend that I am very enthusiastic about this Budget. However, I am grateful to the Chancellor for certain aspects. I am grateful to him for standing his ground, for maintaining his firm policy and for ignoring the false advice from Opposition Members and from some of my misguided right hon. and hon. Friends.

This has not been an easy year. Not only have we had to bear the cost of the miners' strike, but also the distraction caused by it. The Chancellor has tried to give as much help as possible, within the money available, to provide tax relief and to change the national insurance system.

The big problem is that we have not got on top of public expenditure. During the censure debate in January, the Prime Minister said that the United States devoted 10 per cent. less than we did to public expenditure as a proportion of GDP. In the Macmillan era, when we knew that we had never had it so good, we were spending 10 per cent. less. The Prime Minister reminded us that the last Labour Government, when they were being manipulated and ruled by the IMF, made a cut of £10 billion in today's terms in public spending. Until we can think in such terms we shall be over-taxed and, because of the sheer weight of government, less competitive.

I shall explain what the Chancellor should have done despite the problems confronting him. He is not as hedged in as he thinks. The problem is that he feels he is hedged in by a number of sacred cows. One of these is child benefit. Why on earth do we tax people so heavily and give child benefit across the board? If we gave child benefit only to those who need it—those who earn only two thirds of the national average wage—another £3 million could be found for tax cuts. That would hurt no one. We take £25 a week in tax and national insurance from a family with an income of £110 a week and give £25 back in child benefit, housing benefit, and so on. There can be no sense in that.

If we means-tested child benefit so that those who earn more than two thirds of the national average wage did not receive it, and made corresponding tax cuts, everyone would be better off and bureaucracy could be reduced.

The same applies to housing benefit. Why do we give housing benefit to people who earn £10,000 or £12,000, and even as much as £17,000 a year? Why do we over-index benefits? We over-index special security benefits, for instance. That means that a person dependent on social security receives a 4.7 or 5 per cent. tax-free increase. To keep up, the low-paid must receive an increase in pay of at least 7.5 per cent. It should be no surprise to the Government that wages are going up by 7.5 per cent. That is what is necessary, taking taxation into acount, to keep up with the basic income fixed by index-linked supplementary benefit.

Another sacred cow is local government. I do not know how my right hon. Friend the Member for Old Bexley and Sidcup (Mr. Heath) has the nerve to criticise the Government when he did so much to cause today's problems by his reform of local government.

Today, 1 million more people are employed in local government than in 1960. That costs at least £12.5 billion a year. The Government are responsible for all expenditure, including that on local government. Some of the nonsense talked about the autonomy of local government does not bear examination.

A moratorium should be imposed upon local government recruitment until local government employment comes more into line with employment in the rest of the community where labour has to be shed to make undertakings more efficient and viable. Why should local government have to shed only 4 per cent. when the Civil Service has managed to shed 14 per cent. of its labour force?

I welcome the reform which is to come in a Green Paper on taxation. I also look forward to the promised reforms in welfare benefit reviews. I urge the Government not to do anything in isolation. All these matters should be brought together. We should have one reform; we should have one taxation benefit system; we should change the position at the earliest possible moment—there is no need to wait for a computer or for two or three years—and preferably in the next Budget, in which no one pays tax and receives benefit. It is an absurd and bureaucratic waste. The only people who gain from the present system are the bureaucrats.

Although we claim that we have tried to do something to help unemployment, unless we take a radical stance we shall not succeed. The expenditure on the youth training scheme, job creation and so on has risen from £180 million in 1974 to more than £2,000 million today. That is achieving nothing very much, but is adding to the burden of taxation. The time has come for a radical reform of our unemployment system. If we had put the Beveridge report into operation, the unemployment problem would never have confronted us.

The Government must be more firm with young people. Why do we insist on giving them the choice of either receiving benefit and doing nothing or accepting training? They must accept training. Beveridge said that no young person should leave school and immediately join the dole queue. He said that they should have training and acquire a skill. I urge the Government to be more bold in that area.

Sooner or later we will have to put a stop to this something-for-nothing society. Why cannot we turn the jobcentres into work centres? Why cannot we offer £1.75 or £2 an hour to all those out of work to do some environmental work? If people do not want to work, that is up to them. We could give all who want to work a job for less than £12 billion per year, while we are currently spending in excess of £15 billion in supporting unemployment, in regional aid and in the other measures to alleviate unemployment.

8.13 pm

Mr. Stan Thorne (Preston)

I assure the hon. Member for Norfolk, North (Mr. Howell) that I have never met anyone who expects something for nothing from this Government. On the contrary, they have ceased to expect anything.

Conservative Members have shown mixed interpretations of the Budget. It was supposed to have been about the creation of jobs, but it is obvious that Conservative Members are highly sceptical whether it will achieve that aim. It could be argued that those on the Treasury Bench have said on previous occasions that they could do nothing about unemployment and that they cannot create competitiveness in industry. Yet earlier this afternoon the Secretary of State for Trade and Industry catalogued a whole series of measures that he claimed would improve the competition in the market place by investment in small businesses and so on. The notion that the Government cannot do anything about unemployment while at the same time trying to persuade people that they are doing something only creates absolute confusion about the Government's policies. The Government certainly do not provide a service to the people. They do not meet people's needs—they have made it clear that that is not the job of Government.

The hon. Member for Norfolk, North said that he was opposed to child benefit for certain sections of the community. I believe that child benefit is wholly inadequate for the millions of people who are in desperate circumstances because of the lack of employment. Indeed, it is in the meeting of people's needs that jobs can be created. Conservative Members talk about growing prosperity, but it is apparent that they are talking about the manufacture of consumer goods and selling more of them. They do not see the meeting of people's needs in terms of prosperity. Planning our resources to meet the needs of people will, to a large extent, solve the problem of unemployment while filling those tremendous gaps throughout the country, especially in the urban areas.

How do we plan our capital, our land, our equipment, our factories? Do we plan them on the basis that they will produce for use or produce for profit? It is clear that in our society we plan them somewhat inefficiently on the basis of profit. The one resource that we waste, and have done for many years, is the human resource. They are wasted because we are unable to grasp the need to produce for use. We could have a shorter working week of, say, three or four days. There is little prospect of that now, but it must come at some time if we are to avoid having 5 million or 6 million unemployed in the early 1990s.

I, like other hon. Members, am concerned about my area. In the Preston travel-to-work area, 19,000 people are unemployed—12.4 per cent. of the potential working population. The position in Lancashire as a whole is deteriorating and there is an inflow of population to the new town. The current unemployment figure is 21,467 for those out of work for more than six months; for more than 12 months it is 40,280 and for more than two years it is a miserable 7,534. That is an area where industrial growth is a real prospect. Lancashire Enterprise Ltd. is attempting to create jobs by attracting enterprises to Lancashire. It is not aided by the Government's economic policies or their attitude to local authority spending.

Local authorities are starved of the funds that they need to undertake the investment that we need. In Preston and other parts of Lancashire we have an appalling housing situation. We still have young families living in multi-storey blocks of flats. There is an enormous backlog of repairs to council property. We need to spend several million pounds over four or five years to overcome that problem and to deal with the housing shortage. Undertaking that work would have an enormous impact on jobs, and there would be a multiplier effect in terms of companies in other than building which produce for the construction industry.

The North-West regional health authority has announced that it is running down hospital places for people with mental handicaps. It hopes to send those people out into the community. I hope that the authority is making it clear to the Government that people who go into the community from that type of care need to be catered for. Accordingly, more jobs and services must be provided to meet that need.

We still hear too many reports of people waiting three or four years to undergo minor operations, yet doctors are waiting for hospital positions. There are shortages of kidney machines and other types of equipment. Meeting those needs would help to reduce the numbers of those unemployed. Reductions are being made, we are told, in the overall cost of the drugs bill. Recently on television there was a programme about tranquillisers. One that concerns me is Ativan, because it meets an initial need but then becomes addictive.

What has happened to the Trethowan report? That has not been discussed in the House, although it dealt, among to other things, with the employment of clinical psychologists and the number of psychologists needed in the Health Service.

Mrs. Kellett-Bowman

rose—

Mr. Thorne

I shall not give way to the hon. Lady because my time is up and I am anxious to enable other hon. Members to take part in the debate.

8.22 pm

Mr. Spencer Batiste (Elmet)

It is a tragedy that the Chancellor's freedom of action was drastically curtailed by the wasteful and unnecessary political strike in the mining industry, but the cost to the country of not standing firm would have been very great. In those circumstances, and given that constraint, the Chancellor has put forward a package of measures that is well designed in the long term to encourage enterprise and jobs.

I welcome the encouragement that the Chancellor has given to research and development, to the reform and integration of the income tax and benefits system and to the community programme. As time is short, however, I shall concentrate on the measures that have been designed to remove obstacles to jobs in the small business sector because in my view most new jobs will come from that sector.

When one talks to small business men of their problems, the subject that always comes first and foremost is VAT. Many people in the shoe and clothing trades, in newspapers, in the retailing of books and those who manage pension funds will be wondering whether the large sums of money that they spent on parliamentary consultants, lobbyists and postage were justified. For them, if not for the professional lobbyists, the assurances of the Chancellor will be a welcome respite. I hope, however, that the assurances he has given not to extend the VAT base do not mean that he is no longer thinking about further reform of the VAT system.

My right hon. Friend announced in the Budget useful and welcome changes in VAT procedures on temporary imports and on bad debts, and those will be helpful to small businesses. However, the one action that he could take which would help them most of all, as my hon. Friend the Member for Bournemouth, East (Mr. Atkinson) pointed out, would be to increase massively the threshold for VAT.

The Chancellor said that he was fighting his corner vigorously in the EEC on zero rating. I hope that he is fighting vigorously also for a £50,000 threshold. It would not be an expensive operation to change the system. But should he need extra revenue, it could come from the introduction of a new luxury rate of VAT. Indeed, if we are to continue to switch from direct to indirect taxation, the VAT system must be more flexible and we must look again at the number of rates that exist.

Another major inhibition on employment in small businesses is the employment protection legislation. For many people it means the difference between having a job which is not quite so secure and having no job at all. In this important area, the judgments that were made at the time of the 1971 Act were sound. Therefore I support the reintroduction of the two-year qualification period which now brings the unfair dismissal and redundancy qualifications into line with each other. They should never have parted company.

One action of even more significance in this connection must be the removal of small businesses from the employment protection net. It was the original judgment of the 1971 Act that companies employing fewer than four people should not be subject to the employment protection legislation.

That follows naturally, because these are companies in which personal relationships between the few people who work in them are especially important. In those companies there is often limited management expertise or experience. A large award of damages to someone who has been unfairly dismissed can result in the redundancy of his colleagues and the complete collapse of the business.

Another area which affects small businesses is that of wages councils. I have long advocated the deratification of the ILO convention. We should consider this whole subject in the context of our national needs. I was delighted, therefore, with the announcement of the Secretary of State for Employment last Thursday.

Circumstances have changed substantially since wages councils were introduced at the beginning of the century. In future, wages councils and their continuation must be judged on the effectiveness with which they perform their functions and whether they operate beneficially for the industries which they serve. Their history for the best part of the century has, at best, been chequered. Wages councils have undoubtedly contributed to pricing young people out of work by eroding differentials and denying training to them.

Wages councils have undoubtedly inhibited recruitment by small businesses as a result of their complexity and rigidity. There is a widespread feeling that wages councils and those who serve on them are too academic and out of touch with the realities of industrial life.

It is clear that the status quo is unacceptable. There are a number of alternatives for reform—not just abolition—and there is no need for a uniform response to each industry. Our response can and should be different to meet the particular needs of individual industries.

For example, I am anxious that Sunday trading should be introduced, and I am mindful of the comments of the Auld committee that looked into the matter. We must look at each industry in the context of its own circumstances. Above all, however, it must be appreciated that the status quo is unacceptable. If we are to continue with wages councils, they must address the problems that I have described.

The intention substantially to extend the youth training scheme was one of the most welcome announcements in the Budget. It is impressive to note the way in which the scheme can pick up people who have been drop-outs at school, who have been demotivated by the education system, but who can be remotivated and given fresh interest by worthwhile and relevant training. The new scheme will require a great deal of increased employer participation financially and in extending the number of places that are available. In considering the future of the scheme, most employers will be looking for enthusiasm rather than compulsion in those whom they recruit. I probably reflect the views of many hon. Members on both sides of the House when I say that the scheme must succeed.

But there is one concern. We have compulsory education up to the age of 16 years. Why should it be wrong, if we have compulsory education up to that age, to extend the system for the next two years? If a person has the option at the ages of 16 and 17 to go into employment, further education or youth training, is it right, sensible, or even moral, that we should present him with the fourth option of unemployment? This is a serious matter which we shall have to address when the new scheme is in place. The new scheme, as extended, must be one that enjoys the widest possible support in the House and the country. That is an essential ingredient for its success.

I support the Budget because the measures that it proposes are necessary steps in the way forward. They will take us in the right direction in creating an enterprise culture. It is only within such a culture that the additional jobs that we need will be created. By the time that my right hon. Friend the Chancellor of the Exchequer comes to make his decisions next year, I hope that he will have much more room for manoeuvre. I have tried to signpost the directions that I hope he will be taking, especially for small businesses. It is clear that there are too many avoidable obstacles to employment and enterprise, and they must be removed.

8.32 pm

Mr. Gordon Brown (Dunfermline, East)

The hon. Member for Elmet (Mr. Batiste), in speaking in support of the Budget, forgot—this is something that Ministers have been careful to omit from their remarks—to say that no previous Chancellor of the Exchequer in contemplating a Budget this century has had the financial advantages that are available to the present incumbent.

Oil revenues amounted to £12 billion last year and there will be £13.5 billion in the year to come. There was a windfall bonus of £2 billion last year merely because of the decline in value of the pound and there will be a windfall bonus of £3.5 billion in the year to come. However, in a Budget that the Chancellor describes as a budget for jobs, a Budget that he says will deal with the scourge and evil of unemployment, the best that he can contribute directly in this year to his declared priority, the creation of jobs, from the windfall of North sea oil revenues of £4 billion is £0.075 billion. That is 2p for every pound of the windfall from revenues that he has received.

There will be nothing extra this year for the youth training scheme. There will be nothing extra to improve our infrastructure. Only £75 million is to be spent on the community programme and only half of that sum is to be spent by Christmas of this year. There is £75 million for the right hon. Gentleman's priority, the unemployed, but there is more than £200 million for the handlful of hard-pressed millionaires, who are to be relieved of the burden of capital gains tax and capital transfer tax. There will be £50 million for the land speculators, who are to be relieved of the burden of development land tax.

There is £75 million for the right hon. Gentleman's priority, the unemployed, but the lion's share of his £800 million in tax concessions will be for those rich enough not even to worry about work. The £75 million is not even new money. It is merely a restoration of a cut in the budget of the Department of Employment of £70 million, which was imposed in the autumn statement last November. That is the measure of the Government's concern for the unemployed.

Officially, there are 1.3 million who have not worked for a year or more but the real figure, by any objective standard, is nearly 2 million. Even the CBI argues that thousands could be returned to work by spending £1 billion on an infrastructure programme. The National Economic Development Council asserts that, without such measures, and even more extensive ones, there can be no solid improvement in unemployment for the rest of the decade.

Against this background, the best that the Chancellor can do for his priority, the unemployed, this year is to provide the cheapest possible places on the community programme for 100,000—not by the summer of this year but by the summer of next year. These will be temporary placements, at a cost of only £63 a week. This means that 90 per cent. of the unemployed will be left with absolutely nothing. Yet this is the Budget for jobs. At its best, it will create in my constituency, and in the constituencies of every Member of this place, only 150 new community jobs by the summer of 1986.

The Chancellor referred in his Budget statement to the tragedy of youth unemployment. Only one in three of this summer's school leavers will find work and there will be fewer jobs and fewer college places for young people in 1988 than there are now. The Chancellor is offering nothing extra to the youth training scheme this year. The recurring element in the tragedy of youth unemployment is the feebleness of the Chancellor's attempts to do anything to relieve it.

Last year, the right hon. Gentleman set aside £1 billion for a one-year youth training scheme. He tells us now that the £1 billion will have to suffice for a two-year training scheme that is to be provided on the cheap. The real proposal, which has been carefully omitted in the Budget—the Chancellor is ashamed to tell us what he already knows—is to take away benefit from young people. It is not proposed to give them jobs.

I expect the Chancellor to answer this accusation directly. The Chancellor and his ministerial colleagues have decided — the decision was reaffirmed by the Cabinet committee only last Wednesday — that the Department of Health and Social Security should abandon all financial responsibility for 16 and 17-year-olds, no matter what their circumstances are.

The Conservative party makes a fetish of individual liberties but is prepared to debar teenagers by law from the right even to claim benefit. The established responsibilities to 16 and 17-year-olds are about to be abolished by means of the social security reviews, with incalculable consequences for nearly 200,000 families, who will lose £17 a week. A new and chilling wind of poverty will sweep through thousands of families which are already poor. The measure is defended by the Government as part of their strategy to create prosperity.

What is the Chancellor's long-term solution to the problem of unemployment? His first measure to create jobs — this was mentioned by the hon. Member for Elmet—was to make it easier for employers to destroy them by the amendment of the unfair dismissal provisions, even after a private report commissioned by the Department of Employment stated that not one job would be created as a result of the proposed change.

How does the Chancellor propose to create the real jobs that he talks about? How will he reverse the cuts which have left British industrial investment £3 billion less than it was three years ago? We do not match the spending of our competitors on research and development, which has fallen over the past six years. We do not improve our infrastructure or re-equip industry. We do not take the extraordinary measures that are needed to deal with the extraordinary problem of a manufactured trade deficit which is projected at £4.5 billion in the year to come. We do not stimulate investment in information technology, which is in deficit by £2 billion officially, or in electronics which has a £3 billion deficit. It is projected that that deficit will be £8 billion by 1993.

We do not even invest in the petrochemical industry, which was the subject of a recent Neddy report. That report shows that we, alone of all oil producers, have lost capacity in the petrochemical industry in recent years. We do not modernise our adult training. Half as many British workers have recognised qualifications as their counterparts in America, Germany and Japan.

Having denied ourselves, on the narrowest of ideological grounds, all positive, rational and empirically validated measures to improve the economy, the Chancellor now seeks to diminish unemployment by increasing poverty, whether one is in work or out of it. The right hon. Gentleman's solution to unemployment is quite simply poverty. If he has his way and the Secretary of State for Trade and Industry has his, they will abandon any protection for the low paid by destroying the wages councils. They were created in 1909 as a result of public agitation. They were born of moral indignation at poverty.

We are to have nine weeks' consultation to destroy a 76-year-old system. That is nine weeks' consultation on the basis of a White Paper that is silent about the immorality and indignity of low pay. It is nine weeks' consultation to remove a law that was the handiwork of Sir Winston Churchill, who recognised that poverty was not simply degrading but inefficient, who told the House that low pay was a national evil leading to progressive industrial degeneration, and who understood that, when the state intervened to create a national minimum wage, it was not violating the rights of employers but was righting the wrongs inflicted against employees.

Now that the spirit of Sir Winston Churchill joins the clerics and the teachers and the other trade unionists as part of the enemy within, now that his views are the unacceptable face of modern Conservatism, we are up against not the one nation Toryism, represented in an elequent way in this debate, nor even the Toryism of the aristocracy or the grouse moors—the old Tories at least had the excuse that, for them, Toryism was a sort of hereditary disease — but the new Tory party which dogmatically worships free enterprise, whether it is enterprise or not, and which would rather that people starved, shivered and froze in the pursuit of free market forces than that they were assisted by state intervention.

Is it not the case that all the evidence available to us during the past six years, when the incidence of low pay and poverty have grown, is that no amount of unemployment, low pay or poverty pay will create the economic recovery about which the Chancellor talks? This is the Chancellor who set out not to create thousands of jobs but to save his own, whose Budget leaves not only a divided nation but a divided party and who says that he cannot afford the poor and the unemployed. The truth is that the nation cannot afford the price that it has paid for this Chancellor.

8.41 pm

Mr. Tim Eggar (Enfield, North)

Sometimes last Tuesday one could almost feel the frustration of my right hon. Friend the Chancellor coming through his excellent presentation of the Budget as he tried to steer the course between reassuring the financial markets and adjusting to political pressures. Within those two constraints, my right hon. Friend was just as imaginative this year as last year.

Were those constraints self-imposed? On the revenue side, they were not in any sense self-imposed. I am sure that my right hon. Friend, when he set out at the beginning of the year thinking about what he would do in his Budget, did not want to exclude the options for the extension of VAT or to be prevented by political pressures from tackling pensions. If we are honest, we would say that political pressures from Conservative Members acted as a constraint on the revenue side. I regret the fact that during this Parliament we shall not take any further steps towards fiscal neutrality, but I recognise reality.

Was the constraint of the PSBR self-imposed? Every year since 1980 I have argued that the Chancellor could have lived with a higher PSBR than he accepted. This year was different. The markets were extremely nervous. If we had gone for a higher PSBR and there was some relaxation on the expenditure side, there would have been an overreaction. We might have found ourselves in a greater exchange crisis, with interest rates rising sharply. A higher PSBR than that chosen by the Chancellor was never a serious option. It is not fair to say that the constraints under which my right hon. Friend was operating were self-imposed.

My right hon. Friend the Chancellor rightly stressed the importance of supply side measures. I hope that the new measures that he has announced will be added to during the coming weeks. For instance, the abolition of development land tax was welcome. It should produce more land for housing and industrial development, especially in the cities and suburbs. If we really want to tackle labour mobility, we should encourage the private rented sector and scrap rent controls for future tenancies. If we really want to free land, we should give the private sector the right to go to public sector entities, which own the land that the private sector wants to buy, and serve notices on them to put that land up for public auction, because there is still too much public sector hoarding of land.

I have serious reservations about one supply side measure mentioned by my right hon. Friend. He called for the abolition of wages councils. That was radical stuff. During his speech, I reflected on the fact that that move contrasted sharply with his cautious attitude to tax reforms that affect the more articulate. I accept that wages councils probably adversely affect young people's employment and that they may be unnecessary in certain industries and intervene too much across the board of conditions of employment. That adds up to a case for radical reform of the wages councils, and not for their outright abolition. There is still a role for the Government in protecting the vulnerable in society.

The Budget not only sets an economic framework for next year but will have a dramatic influence on the political climate between now and the next general election. The options are closely circumscribed by the figures in the Red Book. On the revenue side, we have all noted how the fiscal adjustment, or room for tax cuts, disappeared this year. I am not too optimistic that the £6.5 billion that is left to the Chancellor over the next two financial years will not disappear as well. It would be dangerous politically for us if we held out much hope of tax cuts during the remainder of the Parliament.

The outlook on the expenditure side is not much more encouraging. Last year's expenditure round was especially fierce and the political fallout was not helpful to the Government. Next year's round will not be much easier. The £2 billion addition to the contingency reserve is a recognition of how difficult the round will be and of the fact that the political support for further public expenditure restraint is slowly ebbing away.

The Chief Secretary will be fortunate if he can protect the fiscal adjustment from departmental raids. It needs to be protected not only because it would be nice to have the option of reducing taxes but because we shall want to introduce other measures for employment creation and shall need the room created by the fiscal adjustment.

The message is clear: radical reforming instincts for this Government can be allowed their play only when they cost little money and command general support. That is true in two respects—denationalisation and supply side employment measures.

What does that mean for economic management during the next couple of years? We should aspire to nothing more dramatic than careful, prudent and well-managed stewardship of our finances. Our preoccupation should be the provision of a stable economic environment, with the aim of doing everything we can at the margin to assist with employment.

The Chancellor and his team are now cast as pragmatic managers, not as radical innovators. That is not necessarily a criticism of them, nor should they be ashamed of that role. After all, pragmatism is a major strand of the Conservative tradition. The Chancellor may find this an unexciting prospect, but to offer the electorate stability, low inflation, consistent economic growth and measures aimed at increasing employment is not a bad record. It is not a bad manifesto. It is one that I, for one, would willingly settle for.

8.50 pm

Mr. William O'Brien (Normanton)

I sat through the Budget presentation by the Chancellor of the Exchequer, and at no time did I witness any sincerity that it was a Budget to create jobs and reduce unemployment. Furthermore, listening to some of the speeches by Conservative Members, I still feel that we are witnessing a charade of an oath to reduce unemployment, and provide jobs and job opportunities. Indeed, tonight we have heard Conservative Members say that the Budget does not reflect any enthusiasm to create jobs and reduce unemployment. That feeling is prevalent throughout the country.

This afternoon we heard the Secretary of State for Trade and Industry present his case as to why the Government should pursue their strategy in this Budget to reduce unemployment. The right hon. Gentleman referred to the recovery of the economy. I invite him and any other Minister to come to Yorkshire and the north of England and explain where the recovery is taking place. In that area unemployment is rising and there is a decline in job opportunities. No recovery is imminent. The right hon. Member for Old Bexley and Sidcup (Mr. Heath) said that more energy should be put into helping the regions and that there should be more regional grants to help industry in the areas of high unemployment. The Chancellor should consider the loss of jobs in the areas where there has been a rundown of the textile, engineering and foundry industries. Such industries in Yorkshire, as well as throughout the north of England, have collapsed.

Reference has been made more than once in the debate to the miners' strike and to the fact that it had an effect on the Budget and the wherewithal to provide more resources. I remind the Chancellor and other Ministers that the Government had been prepared to take the miners on. When they took them on they did not realise that it would be so long and hard a battle. The Secretary of State for Trade and Industry referred to winning the battle. The Government may have won this first stage, but the argument is not over. There is still the question of what will happen to the communities after pit closures. In my constituency, where several pits have been closed and unemployment has increased, what are the Government doing about it? There must be some recognition of the fact that further hardship and greater problems will be caused when the mining communities are left without additional employment when colleries close.

The Secretary of State also said that people must accept that there is a recovery. He is a political ostrich. He has his head buried in the political sand if he thinks that there is a recovery of the nature that he outlined. We need regional aid. The Chancellor must give regional aid to areas where there has been a rundown of industry, especially in the north of England.

There must be capital spending on infrastructure if we are to prepare for further industrial development. I know from my experience in local government that, when industrialists were contemplating a development, they were concerned about road communications. If the Government do not develop and maintain roads, industry will not develop. Industrialists are also concerned about street lighting when they contemplate development.

There is also public transport. The Government are abolishing it in many areas. If we do not get assistance from the Government in maintaining and developing public transport, there will be a further reduction in industrial development. The same applies to sewerage and sewage treatment. We need that capital expenditure if there are to be real development and job opportunities in the regions.

There is also housing. Industrialists in many areas ask, "Can you provide houses for employees?" The Government are not allowing local authorities the capital to develop housing in the regions. I appeal to the Chancellor to take that matter on board, because it is important to the north of England and particularly to Yorkshire.

Hon. Members have referred to the revenues and windfalls to which the Chancellor and the Government have had access in the form of North sea oil revenues. Those revenues should be spent on developing job opportunities, not on maintaining rising unemployment. We have been advised that employment will deteriorate, not improve, over the next 12 months. We have heard that serenade for the past six years.

Rising interest rates are creating problems for industry and for people with mortgages. The tax concessions that the Chancellor outlined in his Budget statement were swept away within 24 hours by the announcement by building societies that interest rates were to increase. Extra taxes on water, gas and electricity are being levied, so there is no concession in the Budget to anyone, whether employed or unemployed, unless they are in the very high income bracket.

The Secretary of State for Trade and Industry mentioned wage claims. The extra taxes that I have outlined will help increase wages beyond the norm that the Government are setting, because trade unions will demand larger increases. We have heard much about the extra support for small industries. I do not know where Conservative Members find that support, as I see none in my constituency. Small industries there are at a loss to understand what the Government are doing to help them, although many promises have been made.

We have also heard about assistance to charities in the form of equipment and services. Charities want some help when they are assisting people on low incomes, and the Chancellor should consider the VAT that is charged on their collections. I hope that they will be assisted.

9 pm

Mr. Terry Davis (Birmingham, Hodge Hill)

During this debate, we have heard several powerful speeches from a succession of right hon. and hon. Members who have called for a change in the Government's policy. It could have been said that it was predictable that my right hon. Friends the Members for Lewisham, Deptford (Mr. Silkin), for Ashton-under-Lyne (Mr. Sheldon) and for Glasgow, Govan (Mr. Millan) and my other hon. Friends would call for a change in the Government's policy, but we had a similar call from the right hon. Member for Glasgow, Hillhead (Mr. Jenkins). Perhaps even more impressive was the fact that we heard strong calls for changes in policy from right hon. Members on Conservative Benches. The right hon. Members for Old Bexley and Sidcup (Mr. Heath), for Waveney (Mr. Prior) and for Taunton (Sir E. du Cann) were critical of both the Budget and the Government's economic strategy.

As the right hon. Member for Hillhead said, there was a great deal of common ground among them. However, I must tell him that his call for united action in opposition to the Government's policy—a sort of new popular front—would be better received by the Labour party if it came from a different quarter. In particular, it would have been better received if it had not come from someone who was personally responsible for much of the disunity in opposition to the Conservative Government at the last general election and therefore directly responsible for the overwhelming majority enjoyed by the Government, which enables them to regard double digit unemployment with equanimity and which they interpret as an endorsement of the very policies that have produced that level of unemployment.

I suspect that the speech which will be most widely reported tomorrow was that of the right hon. Member for Old Bexley and Sidcup. He delivered a devastating indictment of the Government's economic policy. He convinced me that he cares deeply—[Laughter.] I am sorry that the Chancellor chooses to laugh. I have major political differences with the right hon. Member for Old Bexley and Sidcup. Indeed, I originally came to this House after campaigning in an election almost personally against him. Nevertheless, in spite of our differences, the right hon. Gentleman convinced me that he cares deeply and sincerely about unemployment. The right hon. Member for Old Bexley and Sidcup also demonstrated to us all the extent of the disagreement—the fairly wide spectrum, as I think the right hon. Member for Waveney described it—in the Conservative party.

The real significance of the speeches of the right hon. Member for Old Bexley and Sidcup and his right hon. Friends could be found in the fact that they are not supported by many of their hon. Friends. Indeed, they have received rather more cheers from this side of the House. The importance of their speeches lies in the fact that they are virtually isolated within their own party. A change in economic policy can come only from the Labour party.

As my right hon. Friend the Member for Birmingham, Sparkbrook (Mr. Hattersley) has made clear on several occasions, the Labour party judges the Budget on two tests: what it does to alleviate poverty, and what it does to reduce unemployment and both provide and encourage the provision of more jobs.

We welcome the increase in personal tax allowances to the extent that it benefits the low paid, and we also welcome the reduction in national insurance contributions paid by some people on low wages. On the other hand, the Chancellor tends to talk, especially on television, as if he had at one swoop abolished poverty. He has done no such thing.

According to the Low Pay Unit, the number of families in the poverty trap has increased threefold since the Government came to office. In 1979, there were 90,000 families — a shameful figure — in 1984, there were 270,000. The Budget will take between 5,000 and 10,000 families out of the poverty trap—fewer than one in 27 families.

The Chancellor of the Exchequer also seems to forget that people who are liable to pay national insurance contributions are required to pay them on the whole of their income. The Budget means that a person who receives wages of £37 a week will still have take-home pay which is less than that of a person who receives £35.49 a week. Previously, we had the poverty trap at one threshold for national insurance contributions. The Chancellor has introduced three rates and, therefore, created three traps.

Indeed, the introduction of four separate rates for employers has increased the number of poverty traps from one to four. My right hon. and learned Friend the Member for Monklands, East (Mr. Smith) mentioned a young man whose wages had been held to £33.99 a week to avoid the payment of national insurance by him and his employer. In future, wages will be held to £35.49, £54.99, £.89.99 and £129.99. The Chancellor of the Exchequer should have raised the threshold, but instead he has replaced one threshold with four, which will result in the wages of the low paid being held down.

The Chancellor also fails the test of fairness in the distribution of his bounty. Indeed, we would not expect him to pass it. The Chancellor has wholly failed to concentrate the benefit of his changes in income tax and national insurance contribution on the low paid. Again according to the Low Pay Unit, most low-paid people will continue to pay proportionately more tax than in 1979, and an average family on average earnings will pay proportionately more tax than before the Government came to office. Only those earning or receiving more than £18,000 a year have been given a significant reduction in the amount that they pay in tax.

This part of the Budget can be summarised in two figures. As a result of the Budget changes in income tax and national insurance contributions, families on average earnings—£170 a week—or less will find their weekly income increased by £1.73, whereas a Cabinet Minister on £827 a week will be better off by nearly £9 a week.

If the Chancellor was serious about helping people afflicted by poverty, he would not only have announced changes in income tax and national insurance contributions but increased social security benefits which directly affect people on the lowest incomes.

He would have begun by announcing an increase in child benefit. One of the most dishonourable parts of the Government's record is their deliberate and repeated refusal to honour the pledge that they gave when in opposition to increase child benefit in line with increases in tax allowances. Of course, the Chancellor will say that it is not for him to do so. He will tell us, as he did last year, to wait for an announcement from the Secretary of State for Social Services. But we all know that the Chancellor's silence is more eloquent than words. If the Government intended to increase child benefit in real terms, the Chancellor would not leave it to his right hon. Friend to announce it. It is precisely because any increase in child benefit is a flat rate increase, and because the same amount is given to the mother of every child, that it gives most help to the families who need it most. That is why the Chancellor will not increase child benefit.

We should also consider those who pay no income tax. There will be no real increase for pensioners. We actually heard this evening from the hon. Member for Norfolk, North (Mr. Howell) that pensioners and those who receive social security benefits had been over-indexed. He complained that the increases were too large. In our view, the Chancellor should have announced a real increase in pensions so that pensioners can share in any improvement in the standard of living.

Another group of people who have lost out are those who have been unemployed for a long time—those who are on short-term supplementary benefit on long-term unemployment. They are too old to go on a youth training scheme, and they will get nothing from this Chancellor who only pretends to alleviate poverty.

I repeat that we welcome the higher tax allowances for people with low incomes and the lower national insurance contributions for the low paid. We criticise the Chancellor for having ignored so many others.

We can judge the depth of the Chancellor's concern about poverty by the fact that he is providing only £270 million for the reduction in national insurance contributions from employees. As my hon. Friend the Member for Dunfermline, East (Mr. Brown) said, that compares with the Chancellor's ability to find £50 million to abolish development land tax and to find £155 million to reduce the amount paid in capital gains tax by only 15,000 taxpayers. It also contrasts with tax cuts during the past six years, amounting to £3 billion, for the top 5 per cent. of recipients of income. That sum is apart from the other small gifts that the Chancellor has made, such as the money he gave in last year's Budget to those who own stud farms, the money he gave to those who own woodlands, and the money he gave to parents who send their children to private schools.

The money is there for a genuine attack on poverty. The money is there all right. If the Government wished, they could get the money. What they have not got is the will.

The story is similar with regard to jobs. The Budget does little—almost nothing—for jobs during the coming year. The centrepiece of the Chancellor's claim to have provided a Budget for jobs is the expansion of the youth training scheme and the community programme. Both measures were welcomed by my hon. Friend the Member for Kingston upon Hull, East (Mr. Prescott), but the youth training scheme will be extended to two years from April next year, and the community programme will be increased to provide another 100,000 places by June next year. How many jobs will be provided this year? I suspect the answer is very few.

Who will pay for the scheme? The Chancellor has made it clear that most of the cost of the youth training scheme will be borne by employers. I remember a time when the Chancellor told us that increases in employers' costs were antipathetic to increased employment. A document was published by the Treasury a few weeks ago about the relationship between wages and employment, urging pay restraint because employers would then be able to spend more money and create employment. The burden of that document is not that employers would create more employment by paying more money to the Chancellor.

Perhaps the most shabby part of this Budget is the attack on the wages councils, which has been deplored even by many Conservative Members who otherwise support the Chancellor. We do not know yet whether there will be abolition or emasculation of the wages councils, but we know that the Government will encourage employers to provide new jobs at low wages by abolishing or reforming — certainly by attacking — the wages councils. The effect will be to increase poverty by encouraging low wages for people already employed at very low wages. They will now receive lower wages if the wages councils disappear, and there are 2.75 million people in that category. Bad employers will drive out good employers and wages will undercut.

Who are the 2.75 million people who are protected by the wages councils? Some of them work in the clothing factories, which will once again become sweatshops, but the attack on the wages councils will not only affect people in the clothing and tailoring trade, but others such as shop assistants who are paid as adults £71 a week, people in catering, and people in hairdressing on only £65 a week for an adult worker. The Chancellor says that to attack the wages councils will provide more jobs. However, it is not employers who create such jobs but the market. I should have thought that the Chancellor who believes in market forces would recognise the truth of that argument. Effective demand has the most influence in this sector.

Reducing the wages of the people who work in the hairdressing trade will not increase the number of people who want their hair cut. Presumably, the Chancellor thinks that abolition or reform of the wages councils, leading to lower wages and lower prices, will mean that people will get their hair cut more frequently. I have heard of elasticity of demand, but this is ridiculous.

It was no coincidence that the reference in the Chancellor's Budget statement to wages councils was preceded by his announcement that the Secretary of State for Employment would be extending the rights of the employer to dismiss someone unfairly. That is what it is about, not about the right of the employer to dismiss someone fairly. The employer will be able to dismiss any employee, however unfair it may be, provided that that is done within the first two years of employment.

The hon. Member for Croydon, South (Sir W. Clark) says that he knows employers who are reluctant to take people on — he gave the game away — because they cannot get rid of them. It is important to emphasise that the employer is already protected against mistakes in recruitment. He can dismiss someone unfairly within one year of taking that person on. The Chancellor wants to enable him to dismiss someone up to two years after he has been taken on—dismiss someone unfairly. That move is connected with the attack on wages councils because employers will be able to dismiss people after nearly two years so they can employ someone else on a lower wage.

This Budget is not about attacking unemployment, poverty and low pay but about attacking the low paid.

It is not only people who are protected by wages councils who will be vulnerable to this attack, but everybody else as well.

We must also note that the employers' national insurance contribution has been reduced for low-paid employees but, as with the youth training scheme, almost the entire cost will be borne by employers as a group. In that respect, the Budget involves redistribution, but redistribution from some employers to other employers. A question must be asked: as the Chancellor used to describe the national insurance surcharge as a tax on jobs, why is this move not a tax on jobs? We must ask whether this measure will provide low-paid jobs at the expense of existing higher-paid jobs.

In fact, it may provide jobs at £35.49 a week for one year and 11 months.

As for the tax cuts, the Chancellor will not provide the same benefit for pensioners and parents. That is exactly what happened last year. In fact, the increase in allowances is proportionately the same as last year when the Chancellor also doubled the allowances, and during the past year unemployment has risen by 120,000.

The Chancellor described last year's Budget as a Budget for jobs. He has used the same description this year. Last year he also used the phrase "the scourge of unemployment," and he repeated that phrase during this year's Budget statement. It only goes to show that there is nothing new in this Budget, not even the language.

The Chancellor says that we should look not at unemployment but at employment. In his Budget statement he suggested that employment had risen by 500,000 during the last two years. On "Weekend World" he was more forthright and more definite. He said that the number of people in work had risen by 500,000 over the last two years. That was not a suggestion but a statement of plain fact by the Chancellor of the Exchequer. The Secretary of State for Trade and Industry repeated that claim today.

I understand that the Chancellor and the Secretary of State were referring to the February issue of the Employment Gazette. The Secretary of State told us that between March 1983 and September 1984 there had been an increase of 480,000 in the labour force. During the debate on public expenditure three weeks ago I drew attention to the adjustments made by the Government statisticians and explained that the employment figures had been increased by 76,000 each quarter from the middle of 1983. Therefore the Government's employment figures included no fewer than 450,000 assumed, imaginary jobs. In fact, although I was absolutely right about the statisticians adjusting their figures by 76,000 each quarter throughout last year, I under-estimated the Government's skill with figures, because the 480,000 new jobs — the latest claim in the February issue of the Employment Gazette — are based upon a new set of adjustments. We now have not only revised statistics but also revised adjustments, and they are revised upwards. For some quarters the Government have adjusted the figures not by 76,000 a quarter but by 114,000 assumed extra jobs. The total adjustment for the 18 months from March 1983 to September 1984 is not 450,000 new jobs, as I suggested in our previous debate, but 580,000 new, assumed, imaginary jobs.

That adjusted figure of 580,000 assumed new jobs includes an increase of 317,000 in the number of self-employed. I accept that some of the unemployed will have started up their own businesses and become self-employed, but this Government are asking us to believe that no fewer than 317,000 people have become self-employed during this period of 18 months. I do not believe it and I do not think that the British people will believe it.

The inescapable point about this Government's employment record is that however much they fiddle about with the figures, and whatever adjustments they make to the quarterly statistics, they cannot escape the fact that fewer people are employed today than were employed in June 1979. Even on their own adjusted figures there are 1.3 million fewer people in employment—employed by employers and in self-employment—than there were in 1979.

The Prime Minister is fond of blaming the increase in unemployment on the increase in the population. But not even the Prime Minister can find a statistician to make adjustments that are big enough to hide the truth. There are 1.3 million fewer people employed today than when she became Prime Minister.

What is the Budget doing about that? Virtually nothing. It does nothing to provide real jobs directly, as the Government can. Everyone knows that they can. It does nothing to increase public expenditure, particularly on capital investment. The hon. Member for Croydon, South complained about the impression being given that the Government are spending nothing on capital investment. The hon. Gentleman has missed the point. No one is pretending that the Government are spending nothing. Our case, which has been accepted and urged by others as well, is that the Government should and could spend more than they are spending on capital investment. The level of capital expenditure is simply inadequate compared with the need.

There is no shortage of work to be done. As the right hon. Member for Taunton told us, there is no shortage of hospitals which need to be rebuilt. As my hon. Friend the Member for Preston (Mr. Thorne) told us, there is no shortage of houses which need to be repaired, and there is no shortage of people needing somewhere to live.

There is also no shortage of people to do the work. On the Government's own admission 3.25 million people are looking for work — unemployed people who can not only improve their standard of living by receiving wages instead of supplementary benefit, but restore their self-respect and dignity and obtain the personal satisfaction that they have been taught to derive from going to work. Finally, there is no shortage of money. The right hon. Member for Taunton pointed out that there is no conflict between an increase in public expenditure and cutting taxes. The money is there for both.

I hope that the hon. Member for Croydon, South does not think that I am being unfair in referring specifically to him. I regard his speech as important, more important in political terms than that of the right hon. Members for Taunton and for Old Bexley and Sidcup, or even those of Treasury Ministers. After all, the hon. Member for Croydon, South is the elected chairman of the Conservative Back-Bench finance committee. Ministers are appointed, but the hon. Gentleman has been elected by a majority of Conservative Members. He is the real representative of the Conservative party today.

It follows that we should not be surprised that the Chancellor is so unwilling to bring in a real Budget for real jobs. But it does not follow automatically that the Chancellor should indulge in such hypocrisy, standing at the Dispatch Box and pretending that he regards unemployment as a scourge. He goes further and tells us that "unemployment is unacceptably high". But as my right hon. and learned Friend the Member for Monklands, East drew to the attention of the House, only threee months ago the same Chancellor told an American newspaper that Britain—or the Government, I am not too sure which—could get along adequately with double digit unemployment. When is a scourge not a scourge? It all depends on the Chancellor's audience.

If that is what the Chancellor is telling foreigners, it is not surprising that he has done so little for jobs in the Budget.

The Chancellor has admitted that his Budget is not exciting, and he is right. But the Chancellor, too, misses the point. We condemn his Budget not for lack of excitement, but for lack of commitment. This Budget pays lip service to the alleviation of poverty and is half-hearted in its attack on unemployment. Compared with the scale of poverty and unemployment in Britain, this Budget is completely inadequate and deserves to be rejected by the House of Commons.

9.28 pm

The Chancellor of the Exchequer (Mr. Nigel Lawson)

The hon. Member for Birmingham, Hodge Hill (Mr. Davis) always makes up in volume for what he lacks in cogency of argument. But at least he discussed the Budget, which is a great deal more than the right hon. and learned Member for Monklands, East (Mr. Smith) did. Indeed, the right hon. and learned Gentleman avoided discussing not only the Budget, but the alternative produced by the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) about a fortnight ago. As the House will recall, that included as a central point restoring all the higher rates of tax which this Government have abolished over the past six years and adding, on top of that, by the abolition of the upper earnings limit for employees, a further 9 per cent. In other words, the 83 per cent. top rate on earned income under the last Labour Government was not good enough for him; it has to be 92 per cent. That is how he thinks that he will restore this country's economy to health.

The right hon. and learned Member for Monklands, East also seemed to think that North sea oil revenue should somehow not be counted as part of the economy. In that respect, he was properly rebuked by my right hon. Friend the Secretary of State for Trade and Industry. However, it is interesting to look at the figures that include and exclude North sea oil. During the six years of Labour Government, from 1973 to 1979, the total rate of growth for the economy was 8 per cent., which is almost exactly the same as from 1979 to 1985, in the forecasts that we published in the Red Book. But although the total figures are the same, if North sea oil is left out, the rate of growth from 1979 to 1985 falls to 5.5 per cent., whereas the rate of growth under the Labour Government between 1973 and 1979 falls to 3.5 per cent. In other words, North sea oil had a greater impact on the rate of growth during the Labour party's period in office than during ours.

The right hon. and learned Member for Monklands, East accused us of deliberately creating the present high levels of unemployment. That is offensive nonsense, and he knows it. He knows that unemployment has risen sharply during the past few years, not merely in this country but in France, Germany, Italy, Holland, Belgium and many other countries. Is he saying that we, or the Governments of those countries, are responsible for that? Of course not. He is talking nonsense, and offensive nonsense at that. I hope that he will withdraw what he has said.

Mr. John Smith

Did any representative of any other country say in the United States or anywhere else that the people of this country could dodge along with double digit unemployment? Now that the right hon. Gentleman has had a chance to think about it, does he deny that he said that we could politically and economically dodge along with double digit unemployment?

Mr. Lawson

I have already said that that speech was made not in America but in the United Kingdom. I said that unemployment was a matter of profound concern—of social and human concern. That is what I said. Of course, the right hon. and learned Gentleman's quotation was completely wrong. I said that unemployment had not prevented the economy from growing at a very satisfactory rate. That is what I said, and that is a fact. There is no point in the right hon. and learned Member for Monklands, East trying to wriggle out of things in that way.

Britain is the only country in the European Community, and the only country in the whole of Europe, in which employment in the past two years has grown by half a million. The Government are doing everything that a Government can do to defeat the scourge of unemploy-ment. That should be made perfectly clear.

During the debate, we also heard speeches from the right hon. Member for Glasgow, Hillhead (Mr. Jenkins), who is in his place, and from my right hon. Friend the Member for Old Bexley and Sidcup (Mr. Heath), who is not now in his place. There was very little difference between the two speeches, so perhaps that does not matter. Indeed, I think that it was the right hon. Member for Hillhead who pointed out that there was no gulf between them. When he went on to remark about the shallowness of the gulf between him and Labour Members, I watched the expression on the face of the right hon. Member for Plymouth, Devonport (Dr. Owen). I know that that comment caused him considerable agony. The argument — [Interruption.] The argument by the right hon. Member for Hillhead was that the PSBR should be increased to £10.5 billion, the same as this year, to boost demand through spending on infrastructure. He said that if that were done all would be well. That is a bit rich coming from someone who frequently boasted when he was Chancellor that he achieved a surplus on the Budget—a PSBR of less than zero. To call the Budget deflationary, as the right hon. Gentleman did, when the projected rate of growth is 3.5 per cent. in 1985 is to turn words on their head. The Budget is certainly not inflationary. It is anti-inflationary.

Mr. Roy Jenkins

The Chancellor apparently does not understand the difference between a negative PSBR with unemployment at under 600,000 and a larger PSBR with unemployment at 3.5 million. It is therefore difficult to engage in economic argument with him.

My point was not that £10.5 billion was perfect, but, as he says that the last year was so successful, why is it necessary now to reduce PSBR to £7 billion?

Mr. Lawson

Let me develop the argument. The £10.5 billion PSBR this year has not solved all our problems, so why does the right hon. Member think that it will solve them next year? The £10.5 billion PSBR has been accompanied by employment finance at a higher rate of interest than the right hon. Gentleman or anyone else would wish. That is why it is of first importance to keep the borrowing requirement down.

Other countries are pursuing the same policy. As the right hon. Gentleman acknowledged, other countries are trying to bring down borrowing and monetary growth and to remove the rigidities in the economy from the supply side. There is a gulf—[Interruption.] I see that my right hon. Friend the Member for Old Bexley and Sidcup has arrived. He had to change and he is now in his place. I should like to put that on the record.

There is a gulf between the right hon. Member for Hillhead and some of my right hon. and hon. Friends and reality. The gulf is between the reality of the policies pursued by responsible Governments throughout the Western world and the policies which they espouse—which are totally different. There is a gulf between their views and the response to the Budget by Mr. Roy Close of the British Institute of Management, who said: Limited resources have been used wisely with some useful measures, particularly to produce a better qualified work force through the expansion of the YTS and through the encouragement of small business. The director-general of the CBI, Sir Terence Beckett, said: The Chancellor has got it right; interest rates should fall because he is keeping a grip on inflation and on borrowing. This budget ought to be good for growth and jobs. The House will agree that that is what matters.

The House will also agree that a more thoughtful and constructive speech was made by my right hon. Friend the Member for Waveney (Mr. Prior). I am grateful to him for his endorsement of many of the measures in the Budget, notably the restructuring of the national insurance scheme, his recognition of the vital importance of the supply side and of the measures that we have taken on the trade union front, in which he played an important part in the early days.

My right hon. Friend mentioned with approval the youth training scheme changes, the community programme, the changes in the Employment Protection Act, and, with some qualifications, the proposal radically to reform the wages councils. I am grateful to him for endorsing a number of the measures in the Budget.

The Budget statement emphasises one of the two key aspects of the Government's economic policy — the overall macro-economic policy directed towards achieving growth of demand in money terms, which is consistent with lower inflation, and the micro-economic supply policy which is aimed, through a reduction of disincentives created by the tax system and a reduction of regulation and an increase in competition, to improve the supply performance of the economy. The expansion of the YTS will also bring about improved supply performance.

It is important to make clear the different roles of the two aspects of Government policy. There has been a great deal of confusion during the debate about the prospects for demand and the Government's ability to sustain it. Many right hon. and hon. Members have not yet realised—and this was clear in the speeches of my right hon. Friend the Member for Old Bexley and Sidcup and of the right hon. Member for Hillhead — that the Government cannot, other than in the very short term, directly increase the level of real demand in the economy. Reflation increases the growth of demand in money terms—in other words, in the cash of the day — and the Government, like individuals, spend cash. Lower interest rates boost cash spending and a lower exchange rate increases demand in cash terms. Of course demand can be useful in money terms, but that is not the matter of concern —it is an increase of demand in real terms. Given an adequate growth of money demand, which is what we have in the economy, the real question is to see how that extra spending divides between real demand and inflation and improving the performance of the economy so that the largest proportion comes from real demand and the smallest proportion from inflation.

That was a mistake made by the previous Labour Government, which is why they now languish on the Opposition Benches. Demand grew rapidly in cash terms during their period of office—it increased by no less than 120 per cent. However, real demand increased by only 8 per cent. The increase in prices was well over 100 per cent. Incredibly, those who are espousing that same course today believe that if money demand had risen by another 50 per cent. to 170 per cent., the outcome for employment would have been more favourable. Would it have stopped unemployment doubling, as it did then? If so, why was that not the course? The Labour Prime Minister of the time knew that it would be disastrous, and he said so.

What was the limit of that benign process of demand expansion for which we have heard the siren call today? It has been suggested that demand expansion should be combined with an incomes policy, so that the problem of expansion of demand being dissipated by higher inflation would be removed. I do not need to remind the House that during most of the time that the Labour Government were expanding demand, an incomes policy was in force. The numbers that I have quoted are after, not before, the effect of the so-called incomes policy.

The Government are pursuing a responsible path for the growth of money demand. During the past few years it has grown by 8 per cent. a year. That is more than adequate for any reasonable increase in demand in the economy. It provides ample scope for both inflation and unemployment to fall. There might be an inadequate real demand, but the notion that the solution is an increase in money demand is a profound fallacy. Money demand is the only instrument on the demand side that the Government can manipulate.

That is why it is so important to deal with the problems on the supply side. One of the main problems that we have seen there has been the failure of pay and prices in the economy to adjust to the growth of money demand, leaving more room for output and employment to rise. The tragedy is that too much of this growth of demand has gone in higher living standards for those in work at the expense of those without jobs. I repeat my claim that there is no shortage of demand.

Action taken by the Government to maintain expenditure will be fruitless unless wages and prices are kept reasonably stable. This is of vital importance to any employment policy and must be clearly understood by all sections of the public. If we are to operate with success a policy for maintaining a high and stable level of employment, it will be essential that employers and workers should exercise moderation in wages matters". Those words were used in the 1944 White Paper on employment policy, and they hold good today.

Mr. Ian Wrigglesworth (Stockton, South)

Is it not a fact that unit labour costs rose by 4 per cent. last year? What will the Government do if workers do not exercise the restraint for which the right hon. Gentleman has been appealing?

Mr. Lawson

If restraint is not exercised, the level of employment will be less than it would otherwise be and less than it should be, but there are measures in the Budget, to which I shall come, directed to helping on that front.

In my Budget speech I emphasised the undertaking that I gave to the National Economic Development Council, last month, that the medium term financial strategy is as firm a guarantee against inadequate money demand as it is against excessive money demand. I hope that Opposition Members fully understand the implications of those remarks and will now unreservedly endorse the benefits that will flow from wage moderation.

This year's PSBR turned out to be higher than was planned, but I believe that it was right to borrow to finance the costs of the coal dispute. Those effects were only temporary, and now it is important to get back to the path of the PSBR. [Interruption.] It was worth while to save the country from the damage that that dispute could have caused and to reduce the ambitions of the leaders of that strike.

The right hon. Member for, Sparkbrook argued that if we could spend £2.75 billion to resist Mr. Scargill, why should we not spend a similar amount to defeat unemployment. The plain fact is that one cannot create jobs simply by spending money. That was not why money was spent to resist the effects of the coal strike. Jobs cannot be created that way, and the right hon. Gentleman does a great disservice to the unemployed to pretend otherwise.

The right hon. Member for Sparkbrook must know that if unemployment could be solved simply by increasing Government spending, there would have been no unemployment when the Government under whom he served were in power or, indeed, under any Government in the world today.

The costs of the coal dispute are a once-and-for-all cost. They are temporary, and it was right to borrow to spread the cost over future years. The NUM leadership forced its members into a loss of £1 billion in wages in a vain attempt to overthrow the democratic process.

Now that that is behind us, the prospects for the economy are much better than they would have been—[Interruption.]—and it would have been the height of irresponsibility not to have incurred those costs, which were necessary to keep our people at work.

As for incurring a higher PSBR now, that could only mean, among other things, higher interest rates. There could be circumstances in which that would be to some extent appropriate, but certainly not now in the present state of the financial markets.

I come to the measure to which I alluded — the restructuring of national insurance contributions. This is a major change indeed—something that has never been done before. For people at the bottom of the earnings scale we have made a direct attack on what is for them an even greater burden than income tax. For their employers, national insurance contributions are a significant part of the costs of employment. Reducing contributions on both sides was the most direct measure that I could take to improve job prospects for the young and for the unskilled.

The impact of these changes is not to be underestimated. Indeed, it is very great. The total benefit of the national insurance contribution measures to the low-paid and to their employers combined is well over £1 billion. It will be about £1.15 billion in a full year. Of this, nearly £900 million will go to employers of those earning less than £130 a week. In other words, the cost of employing 8.5 million of the least well paid employees—about 40 per cent. of all employees—will be cut substantially by up to £3 a week per employee. That will increase the take-home pay of nearly 3.5 million earning up to £90 a week by as much as £2.18 a week. Of those, 1.2 million are single aged 25 years or less. About 1 million families will benefit, including 300,000 with gross family earnings under £90 a week. About 1.75 million self-employed will be better off also as a result of the Budget changes in national insurance and tax treatment. They will benefit by £155 million in a full year. That is an expanding sector of the economy that will be increasingly important in the years ahead.

Combining changes in income tax, employees' national insurance contributions and employers' national insurance contributions will mean a cut of nearly 30 per cent. in the total payments of a married man on £80 a week. The same man on £50 a week will see his payments cut by almost half.

I had to find the money to finance those changes in a difficult situation. I recognise that the abolition of the upper earnings limit is not universally welcomed. However, it will not have an adverse impact on job prospects for the higher paid. Those people's skills are in great demand, and the increase is small in percentage terms. The changes have been made possible because we cleared the ground first by abolishing the national insurance surcharge, which was the Labour Government's tax on jobs. Of course Labour Members do not like that. It is no wonder that they do not. We are introducing measures that will improve job prospects and living standards. They will reduce pressure for wage inflation and help the low paid. It is no wonder that Labour Members do not like them.

Meanwhile, the British economy is doing well both absolutely and especially by comparison with our main European competitors. Despite the coal strike, growth last year was 2.5 per cent. above the average for the Common Market countries. The OECD forecasts show Britain next year at the top of the European growth league, whereas under the Labour Government we were right at the bottom. That is the extent of the turn-round that the Government have produced.

We have now had four years of uninterrupted growth, and this summer we shall enter our fifth. Output is now at its highest level ever and exports, too, are at a peak. That is not merely because of oil, because this extends outside the oil sector. Non-oil exports grew by 9 per cent. in 1984 to reach a new record level. Business investment rose by 13 per cent. last year. That, too, was an all-time high. Profitability —the engine of growth—was also substantially higher.

Of course, Labour Members do not like this, but it is the truth. The hon. Member for Sheffield, Attercliffe (Mr. Duffy) was conspicuous as the only Labour Member who was prepared to concede that there was a pronounced upswing in the economy. He gave full credit to it, and I give due credit to him.

The real rate of return on non-North sea oil companies is now about 7 per cent.—twice the level of four years ago. Of particular importance is the quality of this growth. It has been achieved with large improvements in productivity.

My right hon. Friend the Member for Old Bexley and Sidcup expressed considerable concern about the fact that we were becoming a low-productivity economy. I should like to reassure my right hon. Friend. During the three and three quarter years when he was Prime Minister, productivity on manufacturing grew by 3.1 per cent. a year —not bad. During the most recent three and three quarter years for which we have statistics, productivity in manufacturing grew not by 3.1 per cent. a year, but by 6.2 per cent. a year. My right hon. Friend need not be concerned about the growth in productivity in the economy. Under Labour, the growth in manufacturing productivity was 1 per cent. a year. That is the reality of our achievement. The reduction in inflation is also a major triumph.

What of employment and jobs? Clearly we cannot relax until we make greater progress. I say "greater" progress because progress is being made. In the 18 months to September 1984, total employment was up by nearly 500,000 — an increase of 2 per cent. in total employment. How did our competitors do? It is true that the United States did better, but employment in Japan grew by only 1 per cent., and total employment during the same period fell in France and Germany. The experience of the 1970s utterly refutes the doctrine that the higher the deficit and the faster the increase in money spending, the more rapid the growth in output. There is no correlation whatever. That is not the case.

During the 1970s as a whole, fuelled by an ever-increasing public sector borrowing requirement, total money spending rose by 15 per cent. a year, yet real demand in output rose by only 2 per cent. a year. This year and next year the underlying growth in money demand will be 7 or 8 per cent.—half the growth during the 1970s. Far from that proving to be inflationary, the underlying growth rate in real demand has risen to about 3 per cent. a year.

The notion that the key to faster growth is to borrow more and to spend more is certainly not a belief shared by any other Government. Governments from Socialist Spain to Republican America are striving to reduce, not to increase, their deficits. Have the Leader of the Opposition or the right hon. Member for Sparkbrook spoken to their Socialist brothers in France of late? They might be able to tell them a thing or two about the practicality of Labour's alternative Budget. Have the leaders of the two alliance parties tried to persuade their namesakes in Sweden, Germany or Japan of the virtues of bigger deficits and uncontrolled public spending? I suspect that their replies would have been phrased in terms that would be regarded by you, Mr. Deputy Speaker, as unparliamentary.

In the whole of Europe, the two major countries with the smallest budget deficits as a percentage of GDP—Germany, which has the smallest deficit, and Britain, which comes second—have continued to have the most rapid rate of economic growth in the European Community.

We shall stick to the course we are on, not out of dogma but out of common sense. We shall stick to it because it is delivering the goods better than any other policy could. We shall stick to it because there is no alternative, because the Opposition are bankrupt of ideas and all we hear are the tired nostrums of the 1960s and 1970s which led us into inflationary disaster, low growth, low productivity and low profitability — the problems from which this Government have succeeded in liberating the economy and the energies of our people.

Of course, there is much still to be done in creating a better supply side and better economic prospects for our people. That is what this Budget is about. This Budget has been an important further step on the road to more jobs and a more successful economy. We shall continue with this policy. It is proving the most successful that could be produced, and it will continue to bring further success. I commend the Budget to the House.

Question put:—

The House divided: Ayes 355, Noes 202.

Division No. 163]	[10 pm
AYES
Adley, Robert	Cope, John
Aitken, Jonathan	Cormack, Patrick
Alison, Rt Hon Michael	Corrie, John
Amery, Rt Hon Julian	Couchman, James
Amess, David	Critchley, Julian
Ancram, Michael	Crouch, David
Arnold, Tom	Currie, Mrs Edwina
Ashby, David	Dickens, Geoffrey
Aspinwall, Jack	Dicks, Terry
Atkins, Robert (South Ribble)	Dorrell, Stephen
Atkinson, David (B'm'th E)	Douglas-Hamilton, Lord J.
Baker, Rt Hon K. (Mole Vall'y)	Dover, Den
Baker, Nicholas (N Dorset)	du Cann, Rt Hon Sir Edward
Baldry, Tony	Dunn, Robert
Banks, Robert (Harrogate)	Durant, Tony
Batiste, Spencer	Dykes, Hugh
Beaumont-Dark, Anthony	Edwards, Rt Hon N. (P'broke)
Bellingham, Henry	Eggar, Tim
Bendell, Vivian	Evennett, David
Bennett, Rt Hon Sir Frederic	Eyre, Sir Reginald
Benyon, William	Fallon, Michael
Best, Keith	Farr, Sir John
Bevan, David Gilroy	Favell, Anthony
Biffen, Rt Hon John	Fenner, Mrs Peggy
Biggs-Davison, Sir John	Finsberg, Sir Geoffrey
Blackburn, John	Fletcher, Alexander
Blaker, Rt Hon Sir Peter	Fookes, Miss Janet
Body, Richard	Forman, Nigel
Bonsor, Sir Nicholas	Forsyth, Michael (Stirling)
Bottomley, Peter	Forth, Eric
Bottomley, Mrs Virginia	Fowler, Rt Hon Norman
Bowden, A. (Brighton K'to'n)	Fox, Marcus
Bowden, Gerald (Dulwich)	Franks, Cecil
Boyson, Dr Rhodes	Fraser, Peter (Angus East)
Brandon-Bravo, Martin	Fry, Peter
Bright, Graham	Gale, Roger
Brinton, Tim	Galley, Roy
Britten, Rt Hon Leon	Gardiner, George (Reigate)
Brooke, Hon Peter	Gardner, Sir Edward (Fylde)
Brown, M. (Brigg & Cl'thpes)	Garel-Jones, Tristan
Browne, John	Gilmour, Rt Hon Sir Ian
Bruinvels, Peter	Glyn, Dr Alan
Bryan, Sir Paul	Goodhart, Sir Philip
Buchanan-Smith, Rt Hon A.	Goodlad, Alastair
Buck, Sir Antony	Gow, Ian
Budgen, Nick	Gower, Sir Raymond
Bulmer, Esmond	Grant, Sir Anthony
Burt, Alistair	Greenway, Harry
Butcher, John	Gregory, Conal
Butler, Hon Adam	Griffiths, E. (B'y St Edm'ds)
Butterfill, John	Griffiths, Peter (Portsm'th N)
Carlisle, John (N Luton)	Grist, Ian
Carlisle, Kenneth (Lincoln)	Ground, Patrick
Carlisle, Rt Hon M. (W'ton S)	Grylls, Michael
Cash, William	Gummer, John Selwyn
Chalker, Mrs Lynda	Hamilton, Hon A. (Epsom)
Channon, Rt Hon Paul	Hamilton, Neil (Tatton)
Chapman, Sydney	Hampson, Dr Keith
Chope, Christopher	Hanley, Jeremy
Clark, Hon A. (Plym'th S'n)	Hannam, John
Clark, Dr Michael (Rochford)	Hargreaves, Kenneth
Clark, Sir W. (Croydon S)	Harris, David
Clarke, Rt Hon K. (Rushcliffe)	Harvey, Robert
Clegg, Sir Walter	Haselhurst, Alan
Cockeram, Eric	Havers, Rt Hon Sir Michael
Colvin, Michael	Hawkins, C. (High Peak)
Coombs, Simon	Hawkins, Sir Paul (SW N'folk)

Hawksley. Warren	Miscampbell, Norman
Hayes, J.	Mitchell, David (NW Hants)
Hayhoe, Barney	Moate, Roger
Hayward, Robert	Monro, Sir Hector
Heath, Rt Hon Edward	Montgomery, Sir Fergus
Heathcoat-Amory, David	Moore, John
Heddle, John	Morris, M. (N'hampton, S)
Henderson, Barry	Morrison, Hon C. (Devizes)
Hickmet, Richard	Morrison, Hon P. (Chester)
Hicks, Robert	Moynihan, Hon C.
Hill, James	Mudd, David
Hind, Kenneth	Murphy, Christopher
Hirst, Michael	Neale, Gerrard
Hogg, Hon Douglas (Gr'th'm)	Needham, Richard
Holt, Richard	Nelson, Anthony
Hordern, Peter	Neubert, Michael
Howard, Michael	Newton, Tony
Howarth, Alan (Stratf'd-on-A)	Nicholls, Patrick
Howarth, Gerald (Cannock)	Normanton, Tom
Howell, Rt Hon D. (G'ldford)	Norris, Steven
Howell, Ralph (N Norfolk)	Onslow, Cranley
Hunt, David (Wirral)	Oppenheim, Phillip
Hunt, John (Ravensbourne)	Oppenheim, Rt Hon Mrs S.
Hunter, Andrew	Osborn, Sir John
Irving, Charles	Ottaway, Richard
Jenkin, Rt Hon Patrick	Page, Richard (Herts SW)
Jessel, Toby	Parris, Matthew
Johnson Smith, Sir Geoffrey	Patten, Christopher (Bath)
Jones, Gwilym (Cardiff N)	Patten, J. (Oxf W & Abdgn)
Jones, Robert (W Herts)	Pattie, Geoffrey
Kellett-Bowman, Mrs Elaine	Pawsey, James
Kershaw, Sir Anthony	Peacock, Mrs Elizabeth
Key, Robert	Percival, Rt Hon Sir Ian
King, Roger (B'ham N'field)	Pollock, Alexander
King, Rt Hon Tom	Portillo, Michael
Knight, Gregory (Derby N)	Powell, William (Corby)
Knight, Mrs Jill (Edgbaston)	Powley, John
Knox, David	Prentice, Rt Hon Reg
Lamont, Norman	Prior, Rt Hon James
Lang, Ian	Proctor, K. Harvey
Latham, Michael	Pym, Rt Hon Francis
Lawler, Geoffrey	Raffan, Keith
Lawrence, Ivan	Raison, Rt Hon Timothy
Lawson, Rt Hon Nigel	Rathbone, Tim
Lee, John (Pendle)	Rees, Rt Hon Peter (Dover)
Lennox-Boyd, Hon Mark	Renton, Tim
Lester, Jim	Rhodes James, Robert
Lewis, Sir Kenneth (Stamf'd)	Rhys Williams, Sir Brandon
Lilley, Peter	Ridley, Rt Hon Nicholas
Lloyd, Ian (Havant)	Ridsdale, Sir Julian
Lloyd, Peter, (Fareham)	Rifkind, Malcolm
Lord, Michael	Roberts, Wyn (Conwy)
Luce, Richard	Robinson, Mark (N'port W)
Lyell, Nicholas	Roe, Mrs Marion
McCrindle, Robert	Rossi, Sir Hugh
McCurley, Mrs Anna	Rost, Peter
Macfarlane, Neil	Rowe, Andrew
MacGregor, John	Rumbold, Mrs Angela
MacKay, Andrew (Berkshire)	Ryder, Richard
MacKay, John (Argyll & Bute)	Sackville, Hon Thomas
Maclean, David John	Sainsbury, Hon Timothy
McNair-Wilson, P. (New F'st)	St. John-Stevas, Rt Hon N.
McQuarrie, Albert	Sayeed, Jonathan
Madel, David	Scott, Nicholas
Major, John	Shaw, Giles (Pudsey)
Malins, Humfrey	Shaw, Sir Michael (Scarb')
Malone, Gerald	Shelton, William (Streatham)
Maples, John	Shepherd, Colin (Hereford)
Marland, Paul	Shepherd, Richard (Aldridge)
Marlow, Antony	Shersby, Michael
Maude, Hon Francis	Silvester, Fred
Mawhinney, Dr Brian	Sims, Roger
Maxwell-Hyslop, Robin	Skeet, T. H. H.
Mayhew, Sir Patrick	Smith, Sir Dudley (Warwick)
Mellor, David	Smith, Tim (Beaconsfield)
Merchant, Piers	Soames, Hon Nicholas
Meyer, Sir Anthony	Speller, Tony
Miller, Hal (B'grove)	Spence, John
Mills, Iain (Meriden)	Spencer, Derek
Mills, Sir Peter (West Devon)	Spicer, Jim (W Dorset)

Spicer, Michael (S Worcs)	Viggers, Peter
Squire, Robin	Waddington, David
Stanbrook, Ivor	Wakeham, Rt Hon John
Stanley, John	Waldegrave, Hon William
Steen, Anthony	Walden, George
Stern, Michael	Walker, Bill (T'side N)
Stevens, Lewis (Nuneaton)	Walker, Rt Hon P. (W'cester)
Stevens, Martin (Fulham)	Wall, Sir Patrick
Stewart, Allan (Eastwood)	Waller, Gary
Stewart, Andrew (Sherwood)	Walters, Dennis
Stewart, Ian (N Hertf'dshire)	Ward, John
Stokes, John	Wardle, C. (Bexhill)
Stradling Thomas, J.	Warren, Kenneth
Sumberg, David	Watson, John
Taylor, John (Solihull)	Watts, John
Taylor, Teddy (S'end E)	Wells, Bowen (Hertford)
Tebbit, Rt Hon Norman	Wells, Sir John (Maidstone)
Temple-Morris, Peter	Wheeler, John
Terlezki, Stefan	Whitney, Raymond
Thatcher, Rt Hon Mrs M.	Wilkinson, John
Thomas, Rt Hon Peter	Winterton, Mrs Ann
Thompson, Donald (Calder V)	Winterton, Nicholas
Thompson, Patrick (N'ich N)	Wolfson, Mark
Thornton, Malcolm	Wood, Timothy
Thurnham, Peter	Woodcock, Michael
Townend, John (Bridlington)	Yeo, Tim
Townsend, Cyril D. (B'heath)	Young, Sir George (Acton)
Tracey, Richard	Younger, Rt Hon George
Trippier, David
Trotter, Neville	Tellers for the Ayes:
Twinn, Dr Ian	Mr. Carol Mather and
van Straubenzee, Sir W.	Mr. Robert Boscawen.
Vaughan, Sir Gerard
NOES
Abse, Leo	Coleman, Donald
Adams, Allen (Paisley N)	Concannon, Rt Hon J. D.
Alton, David	Conlan, Bernard
Anderson, Donald	Cook, Frank (Stockton North)
Archer, Rt Hon Peter	Corbyn, Jeremy
Ashley, Rt Hon Jack	Cowans, Harry
Ashton, Joe	Cox, Thomas (Tooting)
Atkinson, N. (Tottenham)	Craigen, J. M.
Bagier, Gordon A. T.	Crowther, Stan
Banks, Tony (Newham NW)	Cunliffe, Lawrence
Barnett, Guy	Cunningham, Dr John
Barron, Kevin	Davies, Rt Hon Denzil (L'lli)
Beckett, Mrs Margaret	Davies, Ronald (Caerphilly)
Beith, A, J.	Davis, Terry (B'ham, H'ge H'l)
Bell, Stuart	Deakins, Eric
Benn, Tony	Dewar, Donald
Bennett, A. (Dent'n & Red'sh)	Dixon, Donald
Bermingham, Gerald	Dobson, Frank
Bidwell, Sydney	Dormand, Jack
Blair, Anthony	Dubs, Alfred
Boothroyd, Miss Betty	Duffy, A. E. P.
Boyes, Roland	Dunwoody, Hon Mrs G.
Bray, Dr Jeremy	Eadie, Alex
Brown, Gordon (D'f'mline E)	Eastham, Ken
Brown, Hugh D. (Provan)	Edwards, Bob (W'h'mpt'n SE)
Brown, N. (N'c'tle-u-Tyne E)	Evans, John (St. Helens N)
Brown, R. (N'c'tle-u-Tyne N)	Ewing, Harry
Brown, Ron (E'burgh, Leith)	Fatchett, Derek
Bruce, Malcolm	Field, Frank (Birkenhead)
Buchan, Norman	Fields, T. (L'pool Broad Gn)
Caborn, Richard	Fisher, Mark
Callaghan, Rt Hon J.	Flannery, Martin
Callaghan, Jim (Heyw'd & M)	Foot, Rt Hon Michael
Campbell, Ian	Forrester, John
Campbell-Savours, Dale	Foster, Derek
Canavan, Dennis	Fraser, J. (Norwood)
Carlile, Alexander (Montg'y)	Freeson, Rt Hon Reginald
Carter-Jones, Lewis	Freud, Clement
Cartwright, John	Garrett, W. E.
Clark, Dr David (S Shields)	Golding, John
Clarke, Thomas	Gourlay, Harry
Clay, Robert	Hamilton, James (M'well N)
Clwyd, Mrs Ann	Hamilton, W. W. (Central Fife)
Cocks, Rt Hon M. (Bristol S.)	Hancock, Mr. Michael
Cohen, Harry	Hardy, Peter

Harrison, Rt Hon Walter	O'Neill, Martin
Hart, Rt Hon Dame Judith	Orme, Rt Hon Stanley
Hattersley, Rt Hon Roy	Owen, Rt Hon Dr David
Haynes, Frank	Paisley, Rev Ian
Heffer, Eric S.	Park, George
Hogg, N. (C'nauld & Kilsyth)	Parry, Robert
Holland, Stuart (Vauxhall)	Patchett, Terry
Home Robertson, John	Pendry, Tom
Hoyle, Douglas	Penhaligon, David
Hughes, Robert (Aberdeen N)	Pike, Peter
Hughes, Roy (Newport East)	Powell, Raymond (Ogmore)
Hughes, Sean (Knowsley S)	Prescott, John
Hughes, Simon (Southwark)	Radice, Giles
Janner, Hon Greville	Redmond, M.
Jenkins, Rt Hon Roy (Hillh'd)	Rees, Rt Hon M. (Leeds S)
John, Brynmor	Richardson, Ms Jo
Johnston, Russell	Roberts, Ernest (Hackney N)
Jones, Barry (Alyn & Deeside)	Robinson, P. (Belfast E)
Kaufman, Rt Hon Gerald	Rogers, Allan
Kennedy, Charles	Rooker, J. W.
Kilroy-Silk, Robert	Ross, Stephen (Isle of Wight)
Kirkwood, Archy	Rowlands, Ted
Lambie, David	Ryman, John
Lamond, James	Sheerman, Barry
Leadbitter, Ted	Sheldon, Rt Hon R.
Leighton, Ronald	Shore, Rt Hon Peter
Lewis, Ron (Carlisle)	Short, Mrs H.(W'hampt'n NE)
Lewis, Terence (Worsley)	Silkin, Rt Hon J.
Litherland, Robert	Skinner, Dennis
Lloyd, Tony (Stretford)	Smith, C.(Isl'ton S & F'bury)
Loyden, Edward	Smith, Cyril (Rochdale)
McCartney, Hugh	Smith, Rt Hon J. (M'kl'ds E)
McCrea, Rev William	Soley, Clive
McDonald, Dr Oonagh	Spearing, Nigel
McKay, Allen (Penistone)	Steel, Rt Hon David
Mackenzie, Rt Hon Gregor	Stewart, Rt Hon D. (W Isles)
Maclennan, Robert	Stott, Roger
McNamara, Kevin	Straw, Jack
McTaggart, Robert	Thomas, Dafydd (Merioneth)
McWilliam, John	Thomas, Dr R. (Carmarthen)
Madden, Max	Thorne, Stan (Preston)
Marek, Dr John	Tinn, James
Marshall, David (Shettleston)	Torney, Tom
Martin, Michael	Wainwright, R.
Mason, Rt Hon Roy	Wallace, James
Maynard, Miss Joan	Wardell, Gareth (Gower)
Meacher, Michael	Wareing, Robert
Meadowcroft, Michael	Weetch, Ken
Michie, William	Williams, Rt Hon A.
Mikardo, Ian	Wilson, Gordon
Millan, Rt Hon Bruce	Winnick, David
Miller, Dr M. S. (E Kilbride)	Woodall, Alec
Mitchell, Austin (G't Grimsby)	Wrigglesworth, Ian
Morris, Rt Hon A. (W'shawe)	Young, David (Bolton SE)
Morris, Rt Hon J. (Aberavon)
Nellist, David	Tellers for the Noes:
Oakes, Rt Hon Gordon	Mr. John Maxton and
O'Brien, William	Mr. Robin Corbett.

Question accordingly agreed to

Resolved, That it is expedient to amend the law with respect to the National Debt and public revenue and to make further provision in connection with finance; but this Resolution does not extend to the making of any amendment with respect to value added tax so as to provide—

1. (a) for zero-rating or exempting any supply;
2. (b) for refunding any amount of tax, otherwise than by a provision relating to the insolvency of a person to whom goods or services have been supplied;
3. (c) for varying the rate of that tax otherwise than in relation to all supplies and importations; or
4. (d) for any relief other than relief applying to goods of whatever description or services of whatever description.

Mr. Deputy Speaker (Sir Paul Dean)

I am now required under Standing Order No. 114 to put successively, without further debate, the questions on each of the Ways and Means motions Nos. 2 to 43 and the motion of procedure, on all of which a Finance Bill will be brought in. The House will be relieved to know that I do not intend to read out the motions. I propose to follow the procedure used in recent years: that is to say, I shall first state the number of the motion or blocks of motions and put the question. I understand that Divisions are desired on motions Nos. 8 and 10, in which case, with the leave of the House, I will put motions Nos. 2 to 7 together.

c116
1. 2. SPIRITS 94 words
c116
2. 3. BEER 109 words
cc116-7
3. 4. WINE AND MADE-WINE 257 words
cc117-8
4. 5. BLENDING OF WINES SUBJECT TO DIFFERENT DUTY RATES 369 words
c118
5. 6. CIDER 83 words
c118
6. 7. TOBACCO PRODUCTS 117 words
cc118-22
7. 8. HYDROCARBON OIL 2,290 words, 1 division
c122
8. 9. HYDROCARBON OIL (MIXING) 49 words
cc122-41
9. 10. VEHICLES EXCISE DUTY 6,274 words, 1 division
c141
10. 11. GAMING MACHINE LICENCE DUTY 45 words
c141
11. 12. VALUE ADDED TAX (NEWSPAPER ADVERTISEMENTS) 120 words
c141
12. 13. INCOME TAX (CHARGE AND RATES FOR 1985–86) 233 words
cc141-2
13. 14. INCOME TAX (PERSONAL RELIEFS) 189 words
c142
14. 15. RELIEF FOR INTEREST (LIMIT FOR 1985–86) 93 words
c142
15. 16. ADVANCE CORPORATION TAX (RATE FOR FINANCIAL YEAR 1985) 35 words
c142
16. 17. CAPITAL ALLOWANCES (MACHINERY AND PLANT) 44 words
c142
17. 18. CAPITAL ALLOWANCES (DREDGING, AGRICULTURAL LAND AND HOTELS) 91 words
c142
18. 19. CAPITAL ALLOWANCES (SCIENTIFIC RESEARCH) 44 words
c143
19. 20. INTEREST PAID ON DEPOSITS WITH BANKS ETC. 33 words
c143
20. 21. SECURITIES 49 words
c143
21. 22. FRIENDLY SOCIETIES 169 words
c143
22. 23. OFFSHORE LIFE ASSURANCE 36 words
c143
23. 24. BUSINESS EXPANSION SCHEME 51 words
c143
24. 25. PARTNERSHIPS (BASIS OF ASSESSMENT) 34 words
c143
25. 26. LIMITED PARTNERS (RELIEFS) 41 words
c144
26. 27. LONDON REGIONAL TRANSPORT 76 words
c144
27. 28. VALUATION OF OIL (INCOME TAX AND CORPORATION TAX) 54 words
c144
28. 29. COMMODITY FUTURES, FINANCIAL FUTURES AND TRADED OPTIONS 52 words
c144
29. 30. CAPITAL GAINS (RETIREMENT RELIEF) 67 words
c144
30. 31. CAPITAL GAINS (SERIES OF TRANSACTIONS) 44 words
c144
31. 32. CAPITAL TRANSFER TAX (CONDITIONAL EXEMPTION) 35 words
cc144-5
32. 33. STAMP DUTY (TAKEOVERS) 806 words
cc145-6
33. 34. STAMP DUTY (VOLUNTARY WINDING UP: TRANSFER OF SHARS) 781 words
c147
34. 5. STAMP DUTY (GIFTS INTER VIVOS) 377 words
cc147-8
35. 36. STAMP DUTY (TRANSFERS IN CONNECTION WITH DIVORCE ETC.) 295 words
c148
36. 37. STAMP DUTY (DEATH: VARYING DISPOSIIONS, AND APPROPRIATIONS) 376 words
cc148-9
37. 38. STAMP DUTY (REPEAL OF CERTAIN FIXED DUTIES) 435 words
c149
38. 39. STAMP DUTY (ABOLITION OF DUTY ON CONTRACT NOTES) 127 words
c149
39. 40. STAMP DUTY (EXCHANGE RATES) 48 words
c149
40. 41. OIL TAXATION (LIMIT ON TAX PAYABLE) 46 words
c150
41. 42. OIL TAXATION (EXPLORATION AND APPRAISAL EXPENDITURE) 77 words
c150
42. 43. RELIEF FROM TAX (INCIDENTAL AND CONSEQUENTIAL CHRGES) 54 words
c150
43. PROCEDURE RESOLUTION 263 words
c150
44. FINANCE 56 words
cc151-74
45. National Health Service (Charges) 13,560 words, 1 division